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AA IB Business HL > Introduction to Business > Flashcards

Introduction to Business Flashcards

1
Q

What does a business do, essentially?

A

organize input to produce output, which must be more valuable

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2
Q

What are the types of input?

A

land
labour
capital
entrepreneurship

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3
Q

Goods

A

physical products

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4
Q

Services

A

intangible products

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5
Q

Profit

A

total revenue - total costs

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5
Q

Revenue

A

price x quantity

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6
Q

Expenses

A

everything that the business has had to pay to acquire the input and get the revenue

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7
Q

Inventory/stock

A

what you have that you are able to sell

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8
Q

Strategy

A

method used by a business to achieve its goals

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9
Q

What is the primary sector?

A

extractive sector, extracts directly from nature

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10
Q

What is the secondary sector?

A

manufacturing, turning raw materials into something else

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11
Q

What is the tertiary sector?

A

provides services/intangible products

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12
Q

What is the quaternary sector?

A

research and development

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13
Q

What are opportunities of starting a business?

A

earn a living
financial reward prospect
control over life
work-life balance
innovative business idea
unfilled market niche

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14
Q

What are reasons for business failure?

A

underfunding
neglecting marketing/sales
lack of planning
finding right people
time management
scaling up too quickly

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15
Q

What is the difference between public and private businesses?

A

public - owned by government
private - owned by individuals/group of individuals

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16
Q

What are the main features of sole traderships?

A

owners solely own everything of the company
no legal separation between company and owner
legally ‘confused’
if you want to sue, you sue the person not the company
unlimited liability

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17
Q

What is a sole trader?

A

someone going into a productive activity without actually setting up a legal framework

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18
Q

What are advantages of sole tradership?

A

ease of formation
might benefit from tax exemption if business is small
retention of control

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19
Q

What are disadvantages of sole tradership?

A

unlimited liability
lack of permanence
limited financial resources

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20
Q

What is a partnership?

A

like a sole tradership but with various owners
may even have contract between partners but still no legal framework
each partner responds to 100% of debts with personal assets - solidarity

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21
Q

What is limited liability?

A
  • owner of business can’t lose personal assets
  • can only lose what was put into company
  • even in bankruptcy, investors are safe
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22
Q

What is a public limited company?

A

in the stock market
in the private sector
anyone can trade - needs to match higher standards

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23
Q

What are advantages of partnership over a sole tradership?

A

easier to have a larger company + more money
more expertise

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24
Q

What is a private limited company?

A

privately traded, not in stock market
company chooses who participates

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25
Q

Shareholders

A

owners of an incorporation

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26
Q

What is an incorporation?

A

legal person of the company, separate from owners

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27
Q

IPO

A

initial public offering of shares
from private to public LTD companies

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28
Q

Directors

A

managers, may be shareholders

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29
Q

Liquidation

A

process of turning assets into cash

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30
Q

Dividends

A

profit divided among shareholders

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31
Q

Sleeping partners

A

shareholder that doesn’t want to be active in running the business

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32
Q

What are advantages of private limited companies?

A
  • more investors
  • shareholders invest for long term
  • you know who shareholders are - control
  • limited liability
  • financial records are private
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33
Q

What are disadvantages of private limited companies?

A
  • shared profits
  • lengthier decision making
  • shares can’t be traded publicly
  • more expensive and time consuming
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34
Q

What are advantages of public limited companies?

A
  • shared risks
  • finances raised through stocks
  • separate legal identity
  • limited liability
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35
Q

What are disadvantages of public limited companies?

A
  • shared profits between many shareholders
  • expensive and time consuming to set up
  • loss of control
  • accounts are publicly available
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36
Q

What is a cooperative?

A

a business owned and operated equally by its members who share the profit equally

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37
Q

How are associates in cooperatives?

A

equal standing, votes with same weight, shared voice and ownership and profits

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38
Q

What are the goals of private sector companies?

A

usually profit

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39
Q

What are the goals of public sector companies?

A

social/government goals (which can also be profit)

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40
Q

What is the goal of co-ops?

A

associates (profit/wellbeing etc)

41
Q

What are social enterprises?

A

businesses who are not only focused on profit (may be for marketing reasons)

42
Q

What are the main features of NGOs?

A

wants to improve social/environmental outcomes
by law, any surplus must be reinvested into business
run by board of directors

43
Q

What are advantages of non profits?

A

limited liability
no tax on surplus since it is all reinvested
volunteers mean low costs
grants and donations

44
Q

What are challenges with non profits?

A

funding difficulties may persist more
time and energy raising funds
competition for donations intense
limited employee salaries
paperwork to set up

45
Q

What are NGOs?

A

sub-category of non profit social enterprises

46
Q

What is the vision statement?

A

long term goal/dream of what the future should look like with the business in it

47
Q

What is the mission statement?

A

short term statement that defines what the organisation does in order to achieve vision

48
Q

What are some common business objectives?

A

growth
profit
protecting shareholder value
ethical objectives

49
Q

stakeholder

A

any individual or group that affects or is affected by an organisation

50
Q

strategy

A

a plan that an organisation creates in order to reach a specific coal

51
Q

business strategies

A

usually refer to significant decisions/actions
involve senior management

52
Q

benefit of successful strategies

A

help a business respond effectively to changes in external environment
more agility and resilience

53
Q

What are sociocultural factors? (STEEPLE)

A

all sociocultural characteristics of a region
demographics, lifestyle, beliefs, values
affects what people choose to buy

54
Q

tactic

A

a smaller action that a business takes in order to reach its goals
smaller scale and shorter term

55
Q

What are technological factors? (STEEPLE)

A

new technologies changes how a business operates and the products it makes
technological development
includes infrastructure

56
Q

What are economic factors? (STEEPLE)

A

changes in economic conditions, GDP
cycles of GDP - business cycle
income increase/decrease changes what people want to buy

57
Q

What are environmental factors? (STEEPLE)

A

natural disasters or conditions may affect products
businesses that rely on natural resources
climate change
increased protection of nature may be harmful to businesses

58
Q

What are political factors? (STEEPLE)

A

may change laws
unstable government
Green parties

59
Q

What are legal factors? (STEEPLE)

A

multinational companies - home country and host country laws
complying with laws

60
Q

What are ethical factors? (STEEPLE)

A

conflict between growth/profit and social/environmental responsibilities

61
Q

What is the difference between internal and external stakeholders?

A

internal: individual or group that affects or is affected by an organisation + is directly involved inside the organisation
external: individual or group that affects, or is affected by, an organisation, but not directly involved inside the organisation

62
Q

What is financial sustainability?

A

ability of a business to sustain itself over time and survive

63
Q

What are the benefits of CSR?

A

increased revenue
reduced energy/waste/materials expenses
increased productivity
reduced turnover
reduced risks

64
Q

Give some examples of internal stakeholders.

A

managers, employees, shareholders

65
Q

Give some examples of external stakeholders.

A

labour unions, banks, society

66
Q

What is sociocultural sustainability?

A

distributing value to a wide range of stakeholders in order to have a positive impact on people

67
Q

What is environmental sustainability?

A

positive impact on planet

68
Q

What is the root of stakeholder conflict?

A

diverse interests

69
Q

What are examples of stakeholder conflict?

A
  • managers and employees
  • shareholders and managers
  • shareholders and government
  • local community and shareholders
  • managers and unions
  • customers and suppliers
  • pressure groups and employees
70
Q

What is an economy of scale?

A

Cost reductions experienced by a business when it expands its output

71
Q

What is a diseconomy of scale?

A

The increase in the per-unit production cost as a business grows

72
Q

What is the difference between internal and external economies of scale?

A

Internal: achieved inside company
External: external factors in region/industry that business can’t control

73
Q

What are the types of internal economies of scale?

A
  • purchasing
  • marketing
  • managerial
  • technical
  • financial
74
Q

What are purchasing economies of scale?

A

buying input at a lower cost by purchasing larger amounts - buying in bulk
negotiation

75
Q

What are marketing economies of scale?

A

cost of marketing spread over larger output, lowering average campaign cost

76
Q

What are managerial economies of scale?

A

cost of hiring a manager spread over a larger output
lower costs due to expertised and efficient employees

77
Q

What are technical economies of scale?

A

investment in equipment
efficiency and automation

78
Q

What are financial economies of scale?

A

large loans have lower interest rates

79
Q

What are the types of external economies of scale?

A

innovation
infrastructure
specialisation

80
Q

What is innovation?

A

research and development

81
Q

Why does infrastructure help businesses?

A

more efficient product delivery and commute

82
Q

Why is specialisation good for a business?

A

companies/supplies/workers focus on an industry + specialised workers, less costs with training

83
Q

What are the types of internal diseconomies of scale?

A

managerial issues: difficult for leader to lead + rivalries between divisions of large firms - cooperation issues lead to inefficiencies
increase in workforce size: difficult to control, hierarchy, overspecialisation leading to alienation
communication: complex hierarchy, inefficient communication

84
Q

Difference between internal vs external diseconomies of scale?

A

internal: usually due to difficulty in managing internally large operations
external: expansion of business’s industry

85
Q

What are the types of external diseconomies of scale?

A

limited natural resources: industry-wide increased demand
limited infrastructure: slow down deliveries etc
increased regulation
pollution: climate change costs lives/natural resources/infrastructure

86
Q

What is the difference between internal vs external growth?

A

internal: company grows alone
external: company grows together with other companies

87
Q

What are reasons to grow?

A
  • economies of scale
  • market power
  • shareholder returns
  • lower risk from hostile takeover
  • price of stock increases
  • manager objectives
  • synergy
  • profit
  • vision
  • control
88
Q

What are reasons for businesses to stay small?

A
  • privacy - financial records
  • retained ownership and control
  • no pressure/control from shareholders
  • individuality and not compromising quality
  • easier and cheaper to set up and maintain
  • less costs, risks and responsibilities
  • niche markets, specialisation & limited competition
89
Q

What are mergers and acquisitions?

A

merger: two companies of similar size join together to b become one
acquisition: A buys at least 50+1% of B’s shares, companies become embedded

90
Q

What are takeovers?

A

hostile acquisition
public limited companies only
acquisition but without approval of managers
expensive

91
Q

What is a joint venture?

A

2 companies create a new company together

92
Q

What is a strategic alliance?

A

two companies work together but remain separate

93
Q

What is franchising?

A

company sells business model to interested parties
reduces risk for both parties

94
Q

What are advantages of external growth?

A
  • shared risks
  • shared expertise
  • faster growth
95
Q

What are disadvantages of external growth?

A
  • no full control
  • shared expertise
  • shared profits
96
Q

What is market penetration?

A
  • least risky
  • increasing market share in existing market
  • eg acquisition
97
Q

What is market development?

A

different audience (maybe new country)
riskier
same product, different TA
can be finding new use for existing product

98
Q

What is product development?

A

new products in existing markets
same TA
eg apple pencil

99
Q

What is diversification?

A

riskiest but also highest chance of reward
new product to new people
can be related or unrelated - unrelated is riskier

100
Q

What is the difference between strategy and tactic?

A

strategic - more long-term and relating to overarching goals

tactical - more short-term and may seem disconnected to the overarching goal

101
Q

What are some examples of external diseconomies of scale?

A

Overcrowding leading to transportation problems
High costs of rent due to the high demand
Higher costs due to labour shortages

AA IB Business HL (4 decks)

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