Introduction to business Flashcards
1
Q
Define Primary sector ( 2 marks)
A
The part of the economy engaged in extraction or production of raw materials.
2
Q
Define Secondary sector ( 2 marks)
A
The part of the economy that has to do with producing finished goods manufacturing
3
Q
Define Tertiary sector ( 2 marks)
A
part of the economy engaged in the delivery of services or providing a product.
4
Q
Define Quaternary sector ( 2 marks)
A
the part of the economy engaged in transmitting and delivering information. (GIVING PEOPLE KNOWLEDGE)
5
Q
Define Private sector ( 2 marks)
A
portion of the economy not controlled or owned by the
government.
6
Q
Define Public sector ( 2 marks)
A
portion of the economy controlled or owned by the government.
7
Q
Define Sole traders (2 marks)
A
A business owned and operated by one individual. Thus the owner has unlimited liabilities for the liabilities of the business, and the business ceases to exist when the owner dies.
8
Q
Explain the Main feature of sole traders: The sole trader owns and runs the business ( 2 marks)
A
The sole trader owns and runs the business. They may employ individuals who may be empowered to make some decisions, yet they are the ones making the management decisions and ultimately responsibility for the business
9
Q
Explain the main feature of sole traders: No legal distinction exists between the sole trader and the business ( 2 marks)
A
The sole trader is the business and thus is liable for the debtor. other claims such as the outcome of the law suit. (The owner is the business: they are not separate entities)
10
Q
Explain the main feature of sole traders: Finance is usually limited ( 2 marks)
A
Finance refers to the money available for the business to use. The sole trader can either use personal savings or take loans from family, friends, or even a bank. However, finance is usually limited because the sole trader’s savings may be limited or family,
friends, or the financial institutions may be reluctant to give a loan due to the high rate of failing start-up businesses.
11
Q
Explain main feature of sole traders: The business is often
geographically close to the customer (1 mark)
A
Sole traders get to know their customers on an individual basis.
12
Q
What are the advantages and disadvantages of being a sole trader? (4 mark) [ provide two disadvantages and two advantages]
A
Advantages of sole traders:
* All the profits go to the sole trader.
* Complete control over all important decisions.
* Flexibility in terms of working hours, product and service.
* Sole traders do not have to disclose information high degree of privacy.
* More personalized relationship with customers which gives them competitive advantage.
* Minimal legal formalities.
Disadvantages of sole traders:
* Competing against established business by yourself can be a daunting challenge.
* There may be stress and ineffectiveness because the sole trader has limited time and opportunity to seek advice from others.
* Lack of continuity in case of an accident or owner’s death the business itself may not continue.
* There may be limited scope for expansion as the sole trader spends all their time running the business.
13
Q
What are the characteristics of a sole trader? ( 2 marks)
A
They provide a personalized service. They have privacy and limited accountability. Most of the time sole traders do not have to declare their finances to anyone except ta authorities.
Registering the business is generally relatively easy, inexpensive, and quick. Sole traders make all the decisions themselves and do not have to spend time building consensus for discussions.
14
Q
What are some limitations of sole proprietorships?
A
Limited capital, focus on day-to-day operations instead of future growth, unlimited liability for debts and mistakes.
15
Q
What is a partnership?
A
A business owned and operated by 2 or more individuals with no legal distinction between the partners and the business. Partners are fully responsible for the partnership’s liabilities
16
Q
What are the main features of a sole proprietor ?
A
The sole proprietor owns and runs the business,no legal distinction exists between the sole proprietor and the business, finance is usually limited, and the business is often geographically close to the customer
17
Q
What are the main features of a partnership?
A
Joint decision-making, shared ownership and management, no legal distinction between the business and the partners, unlimited liability for partners, and more available finance compared to sole traders.
18
Q
How are decisions made in a partnership?
A
Decisions are made jointly by the partners, who own and run the business together. While they may employ other people, the partners make the management decisions.
19
Q
What is the typical number of partners in a partnership, and what happens as the number increases?
A
Most partnerships have between 2-20 people. The number of
partners is unlimited, but it becomes more difficult to reach an agreement as the number of partners increases.
20
Q
What is the liability of partners in a partnership?
A
Partners have unlimited liability and are 100% responsible for the partnership’s debts and other obligations. They may be called upon to pay for all of the partnership’s debts, even if they own only a small percentage of the business.
21
Q
How is finance usually obtained in a partnership compared to a
sole trader business?
A
Finance is usually more available for partnerships than for sole traders. All partners contribute capital, and banks/financial institutions are more willing to lend to partnerships due to their perceived stability.
22
Q
what are sleeping partners?
A
These partners provide finance meaning they invest in the
business and expect a share of profit but do not have any role.
23
Q
How can a business offered as a partnership offer varied service than a sole trader?
A
Different partners can bring different expertise and the product or service offered can vary.
24
Q
Do partners have a greater degree of accountability than sole
traders?
A
Partners typically have a greater degree of accountability than
sole traders .
25
Are partnerships typically more stable than sole traders?
Partnerships are typically more stable than sole traders and have a higher likelihood of continuity
26
How are profits allocated for partnerships?
Profits are allocated and paid out according to each partner's
ownership percentage of the business.
27
List the advantages of partnerships ( 2 marks )
As partners may bring different skill sets and qualities,
partnerships may have more efficient production as a result of specialization and division of labor. In general, partnerships bring more expertise to the business than one person can.
28
What are the advantages and disadvantages of partnerships? AT LEAST TWO OF EACH
Advantages:
* Partnerships have less risk, thus having more access to finance.
* Partners can help in emergencies when others are ill or on holiday.
* Partnerships have more chances of continuity that will not necessarily end if one person dies.
Disadvantages:
* Each partnership has unlimited liability, which means that each partner is responsible for the business's debts and actions of other partners. The
* exception to this liability is when it is declared in the deed of partnership limited partners, although the law varies from country to country in general limited partners have limited liability and control both are specified in the deed of partnership.
* Compared to businesses which operate as companies, partnerships usually
have less access to loans from banks and financial institutions.
* Limited finances can prevent businesses from expanding or maximizing opportunities for making profit.
* An individual partner does not have complete control of the business and has to rely on the work and good will of others.
* Profit must be shared among the partners.
* Partners may disagree which in the worst case may lead to a break-up of the partnership.
29
What are the advantages of being a shareholder?
* The price of the share they hold may increase in value if the company is doing well, meaning if profits are increasing so should the value of the shares.
* The company issues a portion of company profits as dividends.
* The amount of money each shareholder receives depends on the amount of shares that they own.
* The shareholder has limited liability.
* Shareholders are not responsible in any way for the company's debt. If the business fails, shareholders lose their investment in the company, no more.
* The shareholders liability is limited to their investment.
30
Disadvantages of being a shareholder
* After all debts are paid shareholders are the last to receive any monies from the sale of assets of the business.
* The price of the shares may decrease in value if the company is not doing well.
* If the profit is decreasing, so will the value of the shares.
* The company may choose to not offer dividends if it does not have to.
* Companies that are performing poorly may not have sufficient funds to pay dividends.
* Businesses that are growing rapidly also need money to support growth to pay for investment in equipment and working capital.
* The entire measurement of value of investment is based upon the rise or fall in value of stock.
* Owning shares in a company does not mean that an individual shareholder has a meaningful say in the decision of the business.
31
Reasons for becoming a company
* Main reason is the owner wants separate legal existence from them personally.
Other reasons include:
* The general recognition of a company means that the business has been successful.
* Selling shares is good finance for the businesses especially with growing working capital requirements.
* Being a company increases the stability of a business since it is a separate legal entity from its owners.
* If a shareholder dies the business continues.
* Companies typically have greater chances of gaining
finance, especially from financial institutions or government.
32
Define privately held companies
A privately held company is an incorporated business offering
limited liability to the owners. Owners liability is limited to their investment in the company. In most countries, shareholders cannot sell their shares unless they have been offered to existing shareholders. The shares cannot be traded on the stock exchange and there are limits on the number of shareholders.
33
Define publicly held companies
Public Limited Companies (PLC) are large companies with publicly traded shares on the stock exchange.
34
What is the difference between privately held companies and
publicly held companies?
privately held companies must sell their shares within the company to people known to the owners. Hence, being a privately held company limits finance but allows more control to be maintained.
35
what are the main features of a company?
* The shareholders own but do not necessarily run the business.
* Their purchase of shares provides finance, but otherwise they have little input into the day-to-day running of the business.
* Instead professional managers are employed to make all the management decisions. Unless it's a very small privately traded company with a very small amount of shareholders who also work as managers,The business and the owners are legally
separate entities.
* The details of the company's formation are legally recorded and are matters of public record.
* Memorandum of association document recording the key characteristics and external activity of the company being created. Articles of association specifying how a company will be regulated internally.
* Greater finance is usually available.
* Held to a high degree of accountability.
* Must reveal information to shareholders so they can understand the condition of their investment. This includes Public audited company reports and Annual general meeting.
* Have greater stability and higher changes of continuity.
36
what are the advantages of companies?
Finance is more readily available than for sole traders and partnerships. Higher stability and lower risk.
37
What are the advantages and disadvantages of companies?
Adavantages:
* The investor has limited liability, only risking their investment.
* Companies have a greater chance of continuity than sole traders or partnerships and possibilities for extension due to greater access to finance.
* An established organizational structure exists, providing stability for long-term relationships.
Disadvantages
* setting up a company can be costly and time-consuming
* requiring legal
procedures.
* Selling shares does not guarantee the desired amount of finance
* owners risk partial or entire control of the business, along with a loss of privacy due to legal obligations like publishing accounts publicly.
38
Define Adding Value
Any method by which a business adds value to input in order to make a profit.
39
Define Entrepreneurship
Spotting and developing an opportunity to create value through innovation, disregarding the resources currently controlled.
40
Define Intrapreneurship
Spotting and developing an opportunity from within an
organisation to create value through innovation, disregarding the resources currently controlled.
41
What is a mission statement?
Mission Statement is the overall purpose of the organisation its
reason for being. It sets out the purposes and values of the
organisation. Mission statements set out guiding principles for
staff in their business. They are written to summarise the aims,
purpose and values of the business to stakeholders, providing a focal point for communication and planning.
42
What is a vision statement?
A vision statement outlines a business aspirations were it wants to be in the future. For example to be the leading sports brand in the world is the vision statement of adidas.
43
Differences between mission statement and vision statements?
The vision statement addresses the question what do we want to
become? whereas the mission statement deals with the question what is our business. Vision statement are focused on the very long term, whereas mission statements can focus on the medium or long term. Hence, mission statements are updated more frequently than vision statements.
44
What are NGOs?
This is a non-profit social enterprise which operates in the Private Sector. AKA Private Voluntary Organisations PVO. Operational NGOs are established from a given objective or purpose. They
tend to be more involved in relief based and community projects
e.g Oxfam and Unicef. Promoting NGOs take a more aggressive
approach to promote or defend a cause, striving to raise
awareness through direct action e.g Greenpeace.
45
What is an Ansoff matrix?
Marketing planning tool that helps a business determine its
product and market growth strategy.
46
Ansoff Matrix: Market Penetration
Existing Products, Existing Markets. Same products for existing
customers. Minimal Risk. Seek to maintain or increase market
share. Intense competition.
47
Ansoff Matrix: Product Development
New Products, Existing Markets. New products for existing
customers. Moderate risk. Innovation to replace existing products.
Product Improvements.
48
Ansoff Matrix: Market Development
Existing Products, New Markets. New customers for existing
products. Moderate risk. Entering overseas markets. New
distribution channels.
49
Ansoff Matrix: Diversification
New Products, New Markets. New products for new customers.
High Risk. Spreading risks. Use of subsidiaries and strategic
business units, parent companies with other brands.
50
What is a SWOT Analysis?
Strategic planning tool that separates influences on a business's
future success into internal and external factors. Allows
businesses to define realistic goals, improve capability, overcome
weaknesses with strengths, and identify threats that can be
turned into opportunities.
51
What are the SWOT Analysis: Internal Factors ?
Strengths: Competitive advantage (e.g., superior product quality,
lowest price). Weaknesses: Disadvantage (e.g., tired brand,
inferior location, high overheads).
52
What are the SWOT Analysis: External Factors ?
Opportunities: Elements a business could exploit (e.g., regulatory change, untapped market). Threats: Elements that could cause trouble (e.g., unfavourable regulation, new market entrant).
53
What are the benefits of SWOT analysis?
Helps in identifying core competencies of the firm. It helps in setting of objectives for strategic planning. It helps in knowing past, present and future so that by using past and current data, future plans can be written or altered.
54
What are the limitations of using SWOT?
Doesn't prioritize issues. Doesn't provide solutions or offer
alternative decisions. Can generate too many ideas but not help you choose which one is best. Can produce a lot of information, but not all of it is useful. Changes in the external environment such as price increases, new competitors, exchange rates and tax changes.
55
What is Corporate Social Responsibility (CSR)?
CSR is the consideration of ethical and environmental practices
related to business activities. A business that adopts CSR acts
morally towards its various stakeholder groups and wellbeing of the society as a whole.
56
What are ethics in business?
Ethics are moral principles that guide decision making and
strategy. Morals are concerned with what is considered to be
right or wrong, from society's point of view.
57
What is a stakeholder?
Stakeholder is any individual or group/organization with a direct
interest/impact or is affected by, the activities and performance of
a business.
58
Give examples of Internal Stakeholders.
Managers and directors, Employees
59
Give examples of External Stakeholders
Customers, Employers, Suppliers, Special Interest Groups,
Shareholders/stockholders, Competitors, Government
60
What are the interests/concerns of Managers?
Increase salary and bonuses, Status, Independence and
responsibility, Autonomy allowing a great deal of freedom to
make choices in the workplace, flexibility in making own
decisions.
61
What are the interests/concerns of Customers?
Reliable Quality, Value of Money, Product availability, Customer
Service
62
What are the responsibilities of the government concerning
business practices?
Responsible for enforcing and regulating business practices.
Operate legally, Tax Receipts, Job creation, Compliance of
businesses with laws, Economic growth
63
Define Suppliers
Businesses who supply goods and services to the
organization. Long term contracts, prompt payment and the growth of purchasing. Customers wanting lower price and higher quality. Shareholders, employees, managers and competitors wanting higher profit.
64
Define Special Interest Groups
An organization such as a union that advocates certain issues such as environment, treatment of animals.
65
Define Employees
Individuals who are directly involved in the production
of the good or delivery of the service.
66
What is STEEPLE analysis?
STEEPLE analysis examines the consequences of changes in
social, technological, economic, environmental, political, and
legal factors on a business's objectives and strategy.
67
What is the difference between SWOT and STEEPLE analysis?
Strengths and weaknesses in SWOT are internal controllable
factors. Opportunities and threats are external and uncontrollable.
Firms use SWOT to reduce weaknesses, minimize threats,
develop strengths, and capitalize on opportunities.
68
How is business growth measured?
The size of a business can be measured in several ways: sales
turnover, market share, capital employed, and number of
employees.
69
What are the reasons for a business to grow?
Businesses grow to benefit from larger scale production
(economies of scale), to gain larger market share, for survival
against competitors, and to spread risk by diversifying into new
markets and industries.
70
What are economies of scale?
Economies of Scale refer to lower average costs of production as
a firm operates on a larger scale due to gains in productive
efficiency.
71
What are some examples of External Economies of Scale?
Technological advancements increasing industry productivity,
improved transportation and communication networks, better-
trained labor pools, and regional specialization.
72
What are Diseconomies of Scale?
Cost disadvantages experienced as a firm grows, leading to
rising unit costs due to lack of control, coordination, and
communication.
73
What are some examples of Internal Diseconomies of Scale?
Managerial problems, poorer working relationships, lack of
specialization, increased bureaucracy, and complacency.
74
What are some examples of External Diseconomies of Scale?
Increased rent due to high business concentration, traffic
congestion causing delivery delays, and increased labor costs
due to worker choice.
75
What is Internal (Organic/Natural) Growth?
Firm growth using its own resources to increase sales and
profits, achieved by improving products/services, better
marketing, R&D investment, workforce training, and expanding outlets.
76
What are some methods of Internal Growth?
Changing prices, effective promotion, producing improved
products, and selling through greater distribution channels.
77
Advantages of Internal Growth
* Distribution network placement
* Offer better credit buy now and pay later
* Increase in capital Investment
* Improved training and development
* Providing overall value for money
* Better Control and Coordination
* Relatively Inexpensive
* Mains Corporate Culture
* Less Risky
78
Disadvantages of Internal Growth
* Diseconomies of Scale
* A need to restructure
* Dilution of Growth and Ownership
* Slower Growth
79
What is External (inorganic/unnatural) growth
External inorganic/unnatural growth is business expansion
achieved by means of merging with or taking over another
business from either the same or a different industry.
80
Types of external growth
* Mergers and acquisitions
* Joint ventures
* Strategic alliances
* Franchising
81
Mergers and Acquisitions
Merger - An agreement by shareholders and managers
of two businesses to bring both firms together under a common board of directors with shareholders in both businesses owning shares in the newly merged business. Examples:
* Exxon- Mobil
* Disney Pixar
Takeover - when another company buys over 50% of the shares of another company and becomes a controlling owner - often referred to as acquisition. Example: Kraft and Cadbhey.
82
Types of integration
Horizontal integration
Lateral integration
Vertical integration
Conglomerate M&As Mergers and acquisitions
83
Define Conglomerate Mergers and Acquisition (M&A's)
the combination of businesses that are in completely distinct or diversified markets unrelated businesses. e.g. Berkshire Hathaway owns businesses in a vast range of industries such as insurance, property, clothing, meat products, flights services, etc.
84
Benefits of Mergers and Acquisitions
* Greater Market Share
* Economics of Scale
* Synergy - Have access to each other resources
* Diversification
85
Define Horizontal integration Integration
Horizontal integrationoccurs when firm in the same industry and the same stage of production merge together e.g., two shoe retail chains merging.
86
Define Lateral integration
Lateral integration refers to M&As between firms that have similar operations but do not directly compete with each other e.g. In 2008 Tata Motors considered a mass market brand acquired Jaguar and Land Rover both considered as luxury brands orPepsiCo acquiring Quaker Oats Company in 2001.
87
Define Vertical integration
Integration with a firm in the same industry but at a different stage of production i.e., primary, secondary or tertiary.Forward Vertical integration Integration with a business in the same industry but a customer of the existing business e.g., shoe manufacturer acquiring a shoe retailer.Backward vertical integration Integration with a business in the same industry but a supplier of the existing business e.g., shoe manufacturer being taken over by a shoe retailer
88
Drawbacks of Mergers and Acquisitions
* Redundancies
* Conflict
* Culture clashes
* Loss of Control
* Diseconomies of Scale
* Regulatory Issues
89
Define Joint Venture
Joint venture are two or more businesses agree to work closely
together on a particular project and create a separate business
division to do so.
90
What are the benefits of joint ventures?
* Costs and risks of a new business venture are shared, useful for costs of developing new products.
* Different companies might have different strengths and experiences and they, therefore fit well together.
* They might have their major markets in different countries.
91
What are the risks of joint ventures?
* Styles of management and culture might be so different that the two teams do not blend well together.
* Errors and mistakes might lead to one blaming the other.
* The business failure of one of the partners would put the whole project at risk.
92
What is a strategic alliance?
Agreements between firms in which each agrees to commit resources to achieve an agreed set of objectives. There is no transfer of ownership.
93
Who can strategic alliances be made with?
* These alliances can be made with a wide variety of stakeholders, for example, With a university finance provided by the business to allow a new specialist training course will increase supply of staff to the firm. With a supplier - to join forces in order to design
and produce components and materials that will be used in a
new range of products. With a competitor to reduce risks of
entering markets that neither firm currently operates in.
94
What is a franchise?
* a business that uses the name, logo and trading
system of an existing successful business. McDonald's, Dunkin' Donuts, 7 Eleven
* A franchise contract allows the franchisee to use the name, logo and marketing methods of the franchiser. The franchisee can, separately, decide what type of legal structure to adopt.
95
Why are franchises a rapidly expanding form of business
operation?
They have allowed certain multinational businesses, for example, McDonald's and the Body Shop, to expand more rapidly than they could have otherwise done.
96
What are the benefits of franchising?
Fewer chances of new business failing as an established brand
and product are being used. Advice and training offered by the
franchisor. National advertising paid for by franchisor. Supplied
obtained from established and quality checked suppliers.
Franchisor agrees not to open another branch in the area.
97
What are the limitations of franchising?
Share of profits or sales revenue has to be paid to the franchisor
each year. Initial franchise license fee can be expensive. Local
promotions may still have to be paid for by franchisee. No choice
of suppliers or supplies to be used. Strict rules over pricing and
layout of the outlet reduce owner's control over own business.
98
What are some issues with evaluating franchising?
* Franchising encourages standardization of vision, service and product development which some entrepreneurs may after time come to regret.
* A poorly performing franchise in one area can impact on the reputation of others locally and globally.
* Some stakeholders object to the presence of franchises as a symbol of globalization.
99
Franchise risk vs. own business risk
The risk associated with running a franchise despite the initial huge fees is smaller than for starting a business of their own, but entrepreneurial innovation will be limited.
100
Define Globalization
The process by which businesses or other organizations develop
international influence or start operating on an international scale. Fundamentally, globalization is the closer integration of countries
and peoples of the world which has been brought about by the
enormous reduction of costs of transport and communications
and the breaking down of artificial barriers to the flow of goods, services, capital, knowledge and to a lesser extent, people across borders.
101
Impact of globalization on businesses
Businesses are subject to constant change in their internal and external environments. The rate of change is accelerating with increasing globalization and the application of new technologies, making markets more competitive and complex.
102
Why is globalization increasing?
- Increasing opportunities for international trade and easier
capital transfers.
- De-regulation allowing foreign enterprises to tender for local
contracts.
- Increased competition caused by increasing foreign investment.
- The growth of emerging markets, e.g. BRIO countries.
- Global strategies creating global brand and corporate
awareness.
- Multinational businesses acquire economies of scale and
competitive advantage.
- Modern production techniques allow location flexibility and
access to lower resource costs.
- Increased mergers and joint ventures support access to global
markets.
- Two-way skills transfers as multinationals locate in new markets
and recruit local residents.
- Transportation costs have fallen e.g. bulk containers.
103
Define Multinational corporation (MNC)
Multinational or transnational corporations MNC/TNC are
businesses with a headquarters in one country, but with business
operations in a number of others.
- Multinationals are normally corporations with many brands
104
Reasons to become multinational:
* Reduced transport and distribution costs producing goods and
services locally.
- By locating in overseas markets, firms avoid tariffs, quotas and
other protectionism.
- By locating overseas, firms ensure access to raw materials at
reduced prices and lower labour, energy and property costs.
- Expanding overseas provides access to large markets, e.g.
Asian markets.
- Increasing scale of operations results in internal and external
economies of scale and spreading of risk.
- 'First Mover Advantage' getting into markets first provides
marketing and distribution advantages.
- 'Foreign' brands may be more desirable, allowing premium
pricing.
- Government grants and tax incentives.
- New communication technologies.
105
How do multinational corporations (MNCs) contribute to the domestic government's revenue?
Profits of multinationals are locally taxed, providing a valuable
source of revenue for the domestic government.
106
What is one potential environmental impact of multinational corporations (MNCs)?
Depletion of natural resources.
107
How can inward investment from multinational corporations (MNCs) affect a country's financial status?
Inward investment should help a country's balance of payment.
108
What does it mean for multinational corporations (MNCs) to be 'footloose', and what impact does this have on the local economy?
MNCs are increasingly 'footloose', meaning they can move location at short notice, creating uncertainty for the local economy.
109
How do multinational corporations (MNCs) contribute to technology transfer and skill development in the local economy?
MNCs introduce new technology and local employees are trained
to use these technology transfer.
110
What impact do newly arrived multinational corporations (MNCs) have on competition and local firms?
Newly arrived MNCs increases the competition in the local
economy. Local firms may lose market share, or close
111
How do multinational corporations (MNCs) benefit local
consumers?
Local population gains from a wider choice of goods and services at lower prices.
112
How can multinational corporations (MNCs) affect the financial resources available to local firms?
Borrowing by MNCs in the domestic economy may reduce access to funds and increase interest rates for local firms
113
Define and exemplify Technical economies of scale.
Increasing the size of the units of production decreases costs.
Example: A double-decker bus is more cost-effective than a solo
bus for transporting the same number of people, as fuel and
driver wages don't double with output, leading to lower average
costs.
114
Define and exemplify Managerial economies of scale.
Managers specialize in specific tasks, enhancing efficiency by
focusing on their expertise. Example: Department managers in marketing, HR, finance, and operations become more efficient through specialization.
115
Define and exemplify Financial economies of scale.
Larger firms have advantages in raising finance. Example: PLCs
can sell shares, while sole traders cannot. Large firms also have
easier access to loans due to more valuable assets for security.
116
Define and exemplify Marketing economies of scale.
Larger firms can have more effective marketing campaigns,
spreading advertising budgets over higher output. Example: Coca Cola can afford to advertise at major events like the World Cup.
117
Define non-prof social enterprise
Non-profit organisations run according to business principles but do not aim at making profit. Their surpluses from trading may be shared with employees and customers, passed on to a third
party, used to buy resources, raise finance, employ staff etc.
118
Define and exemplify Purchasing economies of scale.
Larger businesses get discounts through bulk buying due to
higher bargaining power. Example: Albert gets discounts
from farmers for buying large quantities of meat regularly
119
List the advantages of small businesses.
* Closer to customers personal services
* less competition
* greater
focus on niche markets.
120
List the advantages of big businesses.
* Economies of scale
* market leader status
* survival through risk
spreading.
121
How do businesses determine which stakeholders need to be
satisfied?
Businesses compile a stakeholder analysis visualising which
stakeholders have the most interest in the companys activities, and which have the most influence over the company.
122
What business functions add value to the input?
Production or operations management changing natural
resources into a product or the supply of the service. Marketing
identifying and satisfying consumer needs. Human resources management managing the people workforce in the organisation.
Finance and accounting responsible for the control of money flow in a business.
123
Advantages of going public (IPO)
Shares can be sold to the public. Limited liability. Easier to raise
loans from banks. Because of their size, they can dominate the
market
124
Disadvantages of going public
Setting up business takes time and its costly. Company's financial
accounts are public. Less able to offer personal services to their
customers. Risk that an outsider take control of the company.
125
Define charities
Non-profit organisations with the aim to raise money for good
causes, and draw attention to the needs of disadvantaged groups
of society e.g. Red Cross
126
What are Business objectives ?
Clearly defined and measurable targets on how to achieve the
business aims. These are often expressed as SMART objectives
127
What are business aims ?
Define the firm's purpose and long-term goals, often expressed the mission statement For example Profit maximisation
Increasing market share Benefiting the local community and/or the environment.
128
What happens when spending more on research and
development to create new products?
It might lower the amount payable in dividends to shareholders.
129
What is the difference between business aims and business objectives?
Aims: What the business wants to achieve, not necessarily time-
bound, vague goals, set by senior leaders. Objectives: What the
business has to do to achieve the aims, time-bound, specific and
measurable targets (SMART), set by managers or their
subordinates.
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Define Strategic Decisions
These concern the long-term objectives and overall plans of a
business, and are taken by senior management and directors. e.g
creation of a new product line.
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Define Tactical Decisions
These are short-medium term decisions made on a day-to-day
basis, such as ordering stock and planning production schedules
132
Wha t is a Non-Governmental organization (NGO)?
A non- governmental organization often with a social or humanitarian cause . NGOs are independent of the government but at times receive government grants or funding and cooperation with them.
133
What is a cooperative?
A business organizatio owned and operated by its members who share its profits . Cooperatives take many forms: Financial , Housing , Workers , Producer, and Consumer cooperatives .
134
Define and exemplify risk bearing economies
Savings made by businesses with diversified product portfolios,
spreading fixed costs like advertising and R&D. For example, a large shipping company can use supertankers to transport goods, reducing the cost of transportation per unit and spreading risks across a larger volume of cargo.
135
Define Trade barriers
A government-imposed restriction on the flow of international goods or service the most common barriers is a tariff- a tax on imports
136
Define clustering effects
A geographical concentration interconnected businesses,suppliers and associated institutions in a particular field. These are considered to increase the productivity with which companies can compete nationally and globally.
137
Define Free trade area
A grouping of countries within which tariffs and non-tariff trade barriers between the members are generally abolished but with no common trade policy towards non-members.
138
Define balance of payment
The difference in total value between payments into and out of a country over a period .
139
Define current account
The sum of balance of trade (goods and services exports less imports), net income from abroad and net current transfers.
140
Define current account deficit
A measurement of a country’s trade where the value of the goods and services it imports exceeds the value of the goods a services it exports.
141
What is ‘Race to the bottom’
The situation in which companies and countries try to compete with each other by cutting wages and living standards for workers,and lowering company tax rates,so that the production of goods is moved to the place where taxes and wages are lowest, and workers have the fewest rights.
142
Define Financial capital
The money used by firms and entrepreneurs to purchase the resources needed to produce goods or services.
143
Define labor surplus
Unemployed workers. Where the supply of labor exceeds the demand for labor forcing downward pressure on the average wage rate.
144
Define efficiency
Decreases in the average cost per unit of output.
145
Infrastructure
The basic physical and organizational structures and facilities needed for the operation of a society or enterprise
146
Define productivity
The quantity of output per unit of input.
147
Define industrialization
The period of social and economic change they transforms a human group from an agrarian society into industrial society, involving the extensive re-organization of an economy or the purpose of manufacturing
148
Define negative externalities
A cost that is suffered by a third party as a result of an economic transaction. In a transaction, the producer and consumer are the first and second parties and third parties include any individual, organization, property owner or resource that is indirectly affected.
149
Define monopoly power
Whereby a company gains the ability to raise prices or exclude competitors-this business entity has significant market power, that is, the power to change overly high
150
Profit repatriation
Capital flow from a foreign country to the country of origin. This usually red to returning returns on a foreign investment in the case of a corporation.
151
Define intermediate technology
Technology that is appropriate for use in less developed countries that allows making use of country’s available resources and skills.
152
Define Economies of scope
Occurs when producing two or more products jointly by one firm is less than the cost of producing them separately
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