Forms of business Flashcards
What is a franchise?
A franchise exists when a company sells to another business the right to use their name and sell their goods and services.
Who is a franchisee?
A franchisee is the person who buys the right to use the name and
pays a fee to the franchiser.
Advantages for the franchisee?
The franchisee gains because he has to spend less money than if he had developed his own products and brand name. There is also lower risk for the franchisee because the name and products are established.
Advantages for the franchiser?
The franchiser gains because he can expand with lower costs and
still retain control.
Disadvantages for the franchisee?
The franchisee may not like the fact that he has less control. He will have to keep to a set of rules. The franchiser makes all the product designs and marketing decisions.
The franchisee pays a royalty on the year’s turnover (the total sales
revenue) and will have to pay this whether there is any profit or not.
If there is a profit he will get to keep it.
What is a Co-operative business?
A co-operative business is one in which a group of people come
together to trade, for the benefit of all those in the group. A co-operative can be made up of workers, consumers or producers.
Advantages of Co-operative businesses?
In worker co-operatives there are fewer chances of industrial relations problems as there are no conflicts of objectives. The workers are usually well motivated because they are working for themselves.
Disadvantages of Co-operative businesses?
It is hard for co-operatives to expand because the more members there are, the harder it is to make decisions. Members of co-operatives become involved in making decisions about which they may have no knowledge or experience.
What is a Public sector organisation?
The public sector is any organisation that is owned by the
government and run on behalf of the people. These are often considered vital e.g. The Army, the BBC and the NHS
What is Privatisation?
Privatisation means putting public sector organisations into private hands.
Advantages of Privatisation?
- Encourages people to own shares.
- Decisions are made faster.
- Costs the government less.
- Increases competition.
- Increases efficiency.
Disadvantages of Privatisation?
- Monopolies are created which may charge too much.
- Decisions may not be in the best interests of the public because profit may be the motive.
- Private companies may not invest enough money in something that is vital for the public.
- Competition can waste money because more than one business is providing the service.
- Job losses.
What is Nationalisation?
Nationalisation means taking a private business into public ownership, that is, into a public sector organisation.
*** Do not confuse public sector organisations with public limited companies.
Disadvantages of Nationalisation?
● Nationalisation has not been popular with governments as it is seen as telling the public what they need rather than giving them the choice of a range of services.
● Nationalisation means that the money needed to run the organisations usually comes from taxes. This can be unpopular as not everyone benefits equally from the service and some people may contribute who do not directly use the service at all.
