final exams Flashcards
What is a Business?
An organization that uses resources to produce goods and services that satisfy the needs of consumers.
The transformation process is the process of creating goods and services.
What are the functions of a business?
The actions that a business undertakes, interconnected and interdependent.
Includes human resources, finance, marketing, and operations management.
What are inputs in a business?
Factors of production used in the transformation process, including land, labor, capital, and entrepreneurs.
Choice of inputs affects costs and product quality.
What is output in a business?
The products that a business produces, including goods and services.
Goods can be tangible or intangible.
What is added value?
Occurs in the transformation process when the output produced is worth more than the inputs used.
Can be increased by reducing production costs or increasing brand value.
What is the primary sector?
Involves the extraction, harvesting, and conversion of natural resources for consumer use.
This is the first stage of production.
What is the secondary sector?
Involves the manufacture and assembly of products from raw materials.
What is the tertiary sector?
Involves the provision of services, which are intangible outputs.
What is the quaternary sector?
Describes businesses involved in intellectual, knowledge-based activities regarding information.
This is a subset of the tertiary sector.
What are market forces?
The forces of supply and demand that determine the price of a product and the quantity bought and sold.
What is opportunity cost?
The sacrifice made by choosing one option in terms of the next best alternative.
What happens to market sectors as an economy develops?
The primary and secondary sectors usually decrease, while the tertiary sector typically increases.
What is entrepreneurship?
An individual that takes on financial risk to start and manage a new business based on a new idea.
Entrepreneurs strive for future profits and need characteristics like persistence and courage.
What are reasons to start a business?
Profit, inheritance, autonomy, challenge, personal satisfaction, job security, secured retirement, pursuing a passion.
Includes taking over a family business.
What are opportunities for starting a new business?
Social change, gap in the market, technological change, economic change, environmental change, political change, legal change, ethical change.
What are challenges of starting a new business?
Financial issues, lack of start-up capital, lack of cash flow, lacking experience, poor marketing, legal problems, strong competition, and external factors.
Includes unforeseen global issues like wars and pandemics.
What is the public sector?
Businesses owned and controlled by the government to ensure access, control prices, improve infrastructure, and protect the country.
What is the private sector?
Businesses owned and controlled by individuals, typically run for profit.
What is nationalization?
When a government takes ownership of a business from the private sector, moving it into the public sector.
What is privatization?
When a government transfers ownership of a business from the public sector to the private sector.
What are merit goods?
Products or services that the government believes are undervalued by private individuals and require government intervention for adequate consumption.
What is a sole trader?
An individual who sets up and runs a new business, bearing all risks and receiving all profits.
This entity is unincorporated and has unlimited liability.
What are the pros of being a sole trader?
Easy to set up, full control over the business, keeps all profits, closer market contact, and less start-up capital required.
What is a major con of being a Sole Trader?
Unlimited liability and unincorporated
The owner is responsible for all business aspects, which can lead to significant work and stress.
What defines a Partnership?
A partnership is when 2 or more people combine to form a business enterprise sharing ownership, control, financial burdens, workload, profits, risks
This business entity is unincorporated and has unlimited liability.
What is a Deed of Partnership?
A legal document that outlines the rights and responsibilities of each partner in the partnership
It includes legal requirements, business name, funding from each partner, distribution of profits, salary of the partners, and dismissal of partners.
List some pros of a Partnership.
- The owners share the workload
- Share the costs of starting a business
- Share responsibility when the business fails
- More start-up capital offers possibilities for expansion
- More input in decision making
What are some cons of a Partnership?
- Unlimited liability and unincorporated
- Decision-making is more difficult
- Profits are shared
- Less control for each owner
- More start-up capital is needed
What does unincorporated mean?
When the owner has the same legal identity as the company
Both sole traders and partnerships are unincorporated.
What is Unlimited Liability?
In case of bankruptcy, the owners are completely liable for the debts of the business
This means they could potentially lose more than they originally invested.
What does it mean for a business to be Incorporated?
When the owner has a separate legal identity from the company
Both privately held and publicly held companies are incorporated.
Define Limited Liability.
In case of bankruptcy, the owners are only liable up to the amount that they originally invested into the business.
Who are Shareholders?
Persons or organizations that own a part of a company
Every shareholder is entitled to dividends and voting rights at the annual general meeting (AGM).
What is a privately held company?
A company where the owners can place restrictions on who the shares are sold to in the future
They cannot be traded on the open market and are not listed on any stock exchange.
List some pros of a Privately Held Company.
- Limited liability
- Finance can be raised through selling stocks
- Specialist managers can be hired in each department
- Finances of the business remain private
What are some cons of a Privately Held Company?
- Profits shared with all owners
- Shares cannot be sold to the public without approval
- Legal costs of incorporation
What characterizes a Publicly Held Company?
A company whose shares are sold without restrictions on the open market
These shares are listed on at least one stock exchange.
List some pros of a Publicly Held Company.
- Limited liability
- Can raise large amounts of capital
- Easy for people to trade shares
- Specialist managers can be hired
What are some cons of a Publicly Held Company?
- High legal costs of going public
- Finances are made public
- Ownership is split among many shareholders with differing interests
Define a Social Enterprise.
A business that makes revenue and profit while pursuing social and environmental goals as part of its core objectives.
What are Private Sector For Profit Social Enterprises?
For-profit social enterprises owned and controlled by individuals independent from the government
Some profit is used to benefit society rather than paid out to owners.
What defines Public Sector For Profit Social Enterprises?
Government-owned for-profit social enterprises that aim to make a profit or avoid losses while providing essential goods and services.
What is a Cooperative?
A type of for-profit social enterprise owned and controlled by its members, run for the common benefit of its members.
List the types of Cooperatives.
- Producer Cooperative
- Consumer Cooperatives
- Employee Cooperatives
List some pros of For-Profit Social Enterprises.
- Benefit society and generate profit
- Self-sustaining
- Motivation for employees due to societal purpose
What are some cons of For-Profit Social Enterprises?
- Funding/Investments may be slow
- Risk of greenwashing
- Growth can divert focus from core objectives
What characterizes Non-Profit Social Enterprises?
A business that is not run to make profit but to solely benefit society
They may be funded through donations or selling goods and services.
What are Non-Governmental Organisations?
A business that is not run to make profit but follows a social mission, independent from government influence.
What is a mission statement?
A statement that outlines the overall purpose of a business and what it is trying to achieve
Mission statements tend to be more specific and detailed than vision statements.
What is a vision statement?
A statement that outlines the aspirations of a business for the future
Vision statements tend to be more general and hypothetical than mission statements.
What are the pros of having a mission/vision statement?
- Gives direction and guides decision making and behavior of management staff
- Builds a brand image
- Motivates employees
What are the cons of having a mission/vision statement?
- Can be too vague and general
- Could be seen as just public relations
- Time and cost involved in the process of making them
What is a strategy in a business context?
A long-term plan to achieve the objective of a business
Define an objective in business.
A measurable goal or target that the business wants to achieve in a set period of time
What does growth in a business context refer to?
Growth refers to increases in revenue, profit, market share, assets, and more
What is profit in the context of business objectives?
Maximizing the difference between revenue and costs
What does survival mean for small businesses?
Striving to survive in a competitive market
What is cash flow in terms of business objectives?
Businesses aim to improve their cash flow
What is diversification in business?
Reducing the risk of a product failing
What do shareholders generally want?
High share price and dividend payments
What are ethical objectives?
Objectives based on moral guidelines
What is the first step in the role of objectives in decision making?
Setting the objectives
List factors that impact business objectives.
- Internal factors (e.g., change in management, change in ownership)
- External factors (e.g., economic factors, social factors, market factors)
What are strategic objectives?
Aims and goals of the business that are long-term
What are tactical objectives?
Aims and goals of the business that are short-term and often only include parts of the business
Define a corporate objective.
A target that is set for the business as a whole
What is a functional objective?
A target for one of the functions of the business such as marketing, finance, operations or human resources
What is Corporate Social Responsibility (CSR)?
When a business operates to consider the interests of all groups in society as a central part of decision making
List the categories of CSR.
- Environmental
- Ethical
- Philanthropic
- Economic
What does the Triple Bottom Line Model (TBL) encompass?
Profit, People, and Planet
What does the Triple Bottom Line Model (TBL) emphasize?
A business’ success is not just measured by profit but also its impact on society and the environment
List the pros of CSR.
- Enhanced brand image
- Differentiation from competitors
- Attracting and motivating employees
- Less bad publicity
List the cons of CSR.
- Increased costs
- Lower profits in the short run
- Increased publicity for unethical behavior
- Customers may see this as a marketing attempt and lose trust in the business
What is a stakeholder?
A person or organization who is interested or impacted by the decisions of the business
What are internal stakeholders?
Stakeholders that are part of the business at stake
What are external stakeholders?
Stakeholders that are not part of the business at stake
List the interests of internal stakeholders.
- Employees: High Pay, Good working conditions, Job security, Promotion possibilities
- Managers and board of directors: Maximize salary/bonuses, Responsibility and control, Satisfy shareholders
- Shareholders: Maximize share price and dividends
List the interests of external stakeholders.
- Customers: Reasonable price, Good quality products, Sustainability, Good choice/variety
- Suppliers: Paid on time, Long term contracts, Good relationships
- Government: Creation of jobs, Tax revenue, Compliance with laws
- Pressure groups: Mission compliance, Positive community impact
- Competitors: Business strategy inspiration, Market sector success
- Banks: Loan repayment ability, Good relationships
What is an agreement between stakeholders?
Normally stakeholders will be aligned through agreements, etc.
What is an example of stakeholder conflict?
Managers want to raise prices while consumers want to lower prices
How can stakeholder conflict be resolved?
- Reconsidering the objectives of the business
- Considering the power/influence of different stakeholders
- Pressure groups vs shareholders
- Consumers vs shareholders
- Designing policies that entail most stakeholders
Considering pressure groups when making a decision
What is business growth?
A measure of how rapid a business is able to increase its size.
The size of a business is measured by sales revenue, profit, market share, market capitalization, and number of employees.
What are the key metrics used to measure the size of a business?
- Sales revenue
- Profit
- Market share
- Market Capitalization
- Number of employees
Market Capitalization is calculated as price per share x number of shares.
What are some reasons for business growth?
- Higher sales revenue
- Higher profit
- Higher market share
- More power in the market
- Better brand recognition
- Favoring by retailers
- Economies of scale
- Investment in research and development
Economies of scale refer to the cost advantages due to the scale of operation.
What are reasons businesses might choose to stay small?
- Easier for owners to manage
- Too much competition
- Quicker decision making
- More personal service to customers
- Additional investment might mean giving up some ownership
- Could lead to loss of control
- Might conflict with the family nature of the business
Staying small can help maintain a personal touch and control.
What factors help determine the ideal size of a business?
- Objectives of the business
- Size of the market
- Desired level of control
These factors influence whether a business should grow or remain small.
What is internal growth?
The expansion of a business through the employment of its own resources without involving other businesses.
This could be funded through internal sources of finance.
What is external growth?
The expansion of a business through the use of other businesses, achieved via mergers, acquisitions, takeovers, joint ventures, strategic alliances, or franchises.
Define economies of scale.
When the unit cost of producing a product decreases as the scale of production increases.
Define diseconomies of scale.
When the unit cost of producing a product increases as the scale of production increases.
What are internal economies of scale?
These occur when the cost of producing a unit decreases as the business increases its scale of production.
List the types of internal economies of scale.
- Purchasing economies
- Financial economies
- Managerial economies
- Marketing economies
- Technical economies
Each type contributes to cost efficiency in different ways.
What are some types of internal diseconomies of scale?
- Communication improvements
- Staff morale issues
- Overspecialization of labor
These can lead to inefficiencies and increased costs.
What are external economies of scale?
Economies of scale that originate from outside the business resulting from the whole industry growing in size.
List the types of external economies of scale.
- Infrastructure improvements
- More skilled labor
- Suppliers becoming more efficient
These factors can lower production costs across the industry.
What is a merger?
When two companies agree to combine to form one larger business.
What is an acquisition?
When a company buys another company by purchasing all stocks or a majority of shares.
Define a takeover.
When a company buys another company by purchasing a majority of shares against the will of the target company’s board.
What is horizontal integration?
The integration or combining of two companies in the same industry or same stage of production.
List the pros of horizontal integration.
- Greater market share
- Ability to enter new markets
- Economies of scale
Entering new markets can lead to increased revenue.
What are the cons of horizontal integration?
- Leadership and culture clash
- Regulatory attention
- Potential for diseconomies of scale
Regulatory scrutiny can limit the benefits of integration.
What is vertical integration?
The integration or combining of two companies in the same industry but at different stages of production.
What is backward vertical integration?
The integration of two companies in the same industry at an earlier stage of production, such as buying a supplier.
What is forward vertical integration?
The integration of two companies in the same industry at a later stage of production, such as buying a consumer.
List the pros of vertical integration.
- Control of supply chain
- Reduced risk of supply issues
- Greater market knowledge
- Economies of scale
It allows businesses to streamline operations and reduce costs.
What are the cons of vertical integration?
- Costs of acquiring businesses
- Potential loss of focus on main activities
- Potential for diseconomies of scale
Define conglomerate integration/diversification.
The integration or combining of two companies in entirely different industries.
What is a conglomerate business?
A business that operates in a variety of different industries through conglomerate integration.
What is a pro of conglomerate integration?
The ability to spread risk through diversification
Additional pros include access to a higher customer base and economies of scale.
What is a con of conglomerate integration?
Costs of acquiring an entirely other business
Other cons include potential loss of focus on core business and potential for diseconomies of scale.
Define strategic alliances.
An agreement between two or more firms to work together on specific activities, while remaining fully independent companies.
What is a joint venture?
When two businesses combine their resources to create and manage a new business, while remaining fully independent.
What is a pro of joint ventures?
Sharing of knowledge of expertise between both companies
Additional pros include both businesses remaining independent and the ability to enter a foreign market.
What is a con of joint ventures?
Possibility for conflict in the terms of the deal
Other cons include disagreement on key decisions and potential culture clash.
What is a franchise?
When a business (franchisor) allows another business (franchisee) to use its name, brand image, business model, and product in return for a percentage of the profit.
List two advantages for a franchisor.
- The company is able to grow quickly
- They do not have to pay for the expansion but rather receive profit.
What is a disadvantage for a franchisor?
They need to ensure that the quality is upheld in all franchises.
What is a pro for a franchisee?
Benefits from the brand image and experience of the franchise.
Fill in the blank: A _______ is a company that operates in more than one country.
Multinational Company
List two reasons to outsource production to another country.
- Access to new customers
- Lower costs of production.
What is a host country?
The country that a business is moving into.
Positive impacts of multinational corporations on host countries.
- Creates more job in the host country
- They are likely to provide training to local employees
- Increase in human capital of the host country
- The company may purchase the raw materials locally, benefiting the local economies in the host countries
- It increases the economic output of the host country
- It pays taxes to the host country
- It increases consumer choice and the availability of quality goodsin the host country
- It enhances competition for local businesses, incentivising them to improve
List negative impacts of multinational corporations on host countries.
*Possible damage of local businesses to the extent of bankruptcy
*Possible depletion of non-renewable resources of the host country
*Possible negative effects on the environment
*Possibly eroding the local culture through promoting foreign goods and services
*Short term investments, meaning that MNCs only move to the host country for superficial purposes like tax benefits, making it unlikely for them to meaningfully integrate and have a positive impact
What factors determine whether the impact of multinational companies is positive or negative?
- It depends on the respect that the multinational companies has for the local culture
- Whether the company uses tax avoidance shemes, not paying taxes in the host country
- Whether they employ local employees or simply bring in foreign labor
- The labor conditions of the company
- Their impact on local businesses
What is Human Resource Management?
A strategic approach to the management of people within a business to meet its objectives.
What is personnel management?
A range of discrete tasks necessary to administer the human dimension of business activities.
List three functions of the human resources department.
- Human resource planning
- Recruitment
- Training
- Appraisal (Judging the quality of the employees)
- Remuneration
- Paying the employees
- Dismissal
- Motivating staff
Why is the Human Resource Department important?
- Labor is one of the most important resources in the production process
- The department aims to get the best-fitted and capable employees in addition to motivating them in order to achieve maximum productivity and efficiency
What does dismissal mean in HR?
The act of firing or terminating the contract of an employee due to incompetence or misconduct.
What is redundancy?
When the employees are laid off because of a lack of need for their labor.
What is redeployment?
When an employee is offered suitable alternative employment within the same business.
What is human resource planning?
Assessing the current and future capacity of a business’ workforce and setting out actions necessary to meet the business’ future human resource needs.
Internal factors influencing human resource planning.
- Internal factors
- Labor turnover
- A percent of employees leaving in a year as a proportion of the total workforce
- If people leave then they need to hire more people
- Change in the company objective
- Expansion
- Need more people to produce more products
- New products
- Need people to design new products
- Productivity of employees
- If the employees are very productive then they need less employees
- Automation
- If there are more machines doing the jobs then the company will need fewer employees
- Leads to redundancies of worker employees
- Might result in a need for machinery specialists
- Flexitime
- Homeworking
- Working from home
- Teleworking
- Working from anywhere
- The workforce becomes more flexible and can do job sharing, and hence has access to a larger pool of talent, more equitable
What is labor turnover?
A percent of employees leaving in a year as a proportion of the total workforce.
What is the gig economy?
A labor market in which short term contracts or freelance work are common, as opposed to permanent jobs.
external factors influencing human resource planning
External Factors:
* Demographic change
* An increase in retirement age leads to an increase in job applicants
* More women entering the workforce increases the amount of job applicants
* Changes in labor mobility
* Geographic mobility of labor
* The ability and willingness of people to move to jobs in different areas
* Occupational mobility of labor
* The ability and willingness of people to move to jobs in different occupations
* Willingness to move location for a job
* Openness to take jobs with a different skillset
* Immigration
* People willing to move countries
* Immigration increases the job applicants
* Economy
* Recession
* The demand for the products will decrease then the business needs less workers and make some redundant
* Changes in Laws
(Increase in working hours per week restriction reduces the number of workers needed)
(Decrease in working hours per week restriction increases the number of workers needed)
* Increase in retirement age
* Gig Economy
* A labor market in which short term contracts or freelance work are common, as opposed to permanent jobs
