Introduction To Business (Mr Gibbins) Flashcards
Cooperatives
A business that is owned and run by its members. Profits are shared between members rather than shareholders.
Name 2 advantages of cooperatives.
- Legally straight forward to establish.
- Liability for members is usually limited.
- A higher quality of service is likely to be provided.
- Customers are usually loyal/supportive.
Name 2 disadvantages of cooperatives.
- Capital can be limited.
- Weak management.
- Slower decision making.
- Employees may want more.
Enterprise
Simply another word for a business.
Name 3 characteristics of an entrepreneur.
Risk taker, shows initiative, undertakes new ventures, determined, a leader.
Factors Of Production
The inputs available to supply goods/services to the economy.
Name 2 factors of production.
Land, labour, enterprise, capital.
Adding Value
Difference between the price and costs of inputs.
Name two ways of adding value to a product.
Building a brand, adding features and convenience.
Name two benefits of adding value to a product.
- can charge higher prices.
- can provide and focus on target markets.
- enables differentiation from competition.
Name 3 constraints of a business.
Competition, employee skills, finance available, legislation, economy.
Primary Sector
Activities involving the extraction and use of raw materials.
Secondary Sector
Involves converting raw materials into finished goods.
Tertiary Sector
Provision of services.
How much of the UK Economy is each sector?
Tertiary - 80%
Secondary - 19%
Primary - 1%
Stakeholder
Someone who has an interest in a business’ activities and decision making.
Shareholder
Someone with a share in ownership of a business.
Name two interests of owners/shareholders.
Growth, capital gains, dividend payment and maximising profit.
Name two interests of managers/employees.
Getting paid, safe workplace, promotional opportunities, job security.
Name two interests of customers.
Cheap prices, high quality goods/service, good customer service.
Private Sector Organisations
Owned by individuals, financed by private money from shareholders/loans.
Public Sector Organisation
Owned and run on behalf of the owner, either by the government or organisations funded by government.
Third Sector Organisations
Voluntary/community group, value driven not necessarily profit.
Sole Trader
An individual owning a business on their own.
Name two benefits of operating as a sole trader.
- Don’t have to split profit
- Can make your own decisions.
- Easy to set up, no extra costs.
Name two drawbacks of operating as a sole trader.
- Have unlimited liability.
- Don’t get holiday.
- Harder to raise finance.
Partnerships
Owned by 2 or more people.
Name a benefit of operating as a partnership.
- Easier to raise finance (than sole trader).
- More skills.
Name two drawbacks of operating as a partnership.
- Arguments affect decision making (slower)
- Unlimited liability.
- Share profits.
LLPs
Similar to partnership, but have limited liability and a few other differences.
LTDs
Private limited company, can sell shares to friends/family.
Name two benefits of operating as an LTD.
- Easy to raise finance.
- Have limited liability.
- Low risk for being taken out.
What’s the one drawback of operating as an LTD?
Have to publicise finances.
PLC
Public limited company, can sell shares to the public and have limited liability.
Name two drawbacks of operating as a PLC.
- Have to publish to companies house.
- More risk of being taken over.
- High admin costs.
What percentage of shares are needed for a PLC to be taken over?
51%
Local Market
Where customers buy the products/service in the vicinity of where they are produced.
National Market
Where products/services are traded within the country.
International Market
Where products/services are traded in other countries.
Multinational Companies
Have investment in other countries (production of products0 in at least 2 other countries.
Name two reasons for multinational growth.
- Emerging economies.
- Protectionism (taxing imports to protect domestic markets)
- External growth through takeovers/mergers.
- Economies of Scale.
Name 2 benefits of being multinational.
- Adds to the host country’s GDP.
- Increased competition and consumer choice.
- Increased tax revenues to host country.
Name two drawbacks of being multinational.
- Domestic business may not be able to compete.
- May not feel as socially responsible as domestic businesses.
- Could damage domestic business.
- Tax avoidance
Franchiser
Business with a well known brand who sell to the franchisee.
Franchisee
A person or group of people that set up using that brand.
Name an advantage to the franchiser.
- The firm may not have to spend large amounts of money to expand.
- Products necessary for franchise to operate under their control.
- Applicants can be carefully selected for suitability.
Name a disadvantage to the franchiser.
- Control issues.
- The cost of supporting the franchisees.
- The possibility of conflict.
Name two advantages to the franchisee.
- Lower risk.
- Support advice and training.
- Marketing (national)
- May be easier to obtain finance.
Name 3 disadvantages to the franchisee.
- Profit is shared.
- Franchise fees.
- Supplies have to be brought from the franchiser.
- Less control and independence.
- The business cannot be sold without permission.
- Franchise may be for a fix period.
Name 3 ways of measuring business size.
Number of employees, amount of property, turnover and profit levels, stock market value, capital employed.
Name two factors affecting business size.
Market share, nature of the product, ability to access resources for expansion, personal preference.
Name 3 reasons a business may want to grow.
- Greater challenge.
- A higher return on investments.
- Growth into new markets can spread risk.
- A bigger business is better placed to fight external threats.
- Opportunity to gain economies of scale.
Name a reason why small businesses still survive.
- They still have individual contact with customers.
- Less vulnerable from a recession. (Less overhead costs)
- Will not be affected by diseconomies of scale.
GDP
Measures the value of all economic activity in a country.
Recession
Where GDP decreases for 6 months or more.
Organic Growth
Growth within the business.
External Growth
Growth from outside the business.
Name 2 advantages of organic growth.
- Less risk than external growth.
- Can be financed through internal funds.
- Builds on a business’ strengths.
- Allows the business to grow at a more sensible rate.
Name 2 disadvantages of organic growth.
- Growth achieved may be dependant on the growth of the overall market.
- Hard to build market share if business already leader.
- Slow growth
- Franchises can be hard to manage.
Merger
A new business is created.
Takeover
One business takes control of another business.
Forward Integration
Acquiring a business further up the supply chain.
Horizontal Integration
Acquiring a business at the same stage of the supply chain.
Backward Integration
Acquiring a business operating earlier in the supply chain.
Conglomerate
Where the acquisition has no clear connection to the business buying it.
Name a benefit of external growth.
- Economies of scale.
- Synergy.
Name a limitation of external growth.
- Regulators.
- Employees (motivational problems)
- Diseconomies of scale.
Joint Venture
Two or more businesses pooling their resources and expertise to achieve a particular goal.
Name a reason for a joint venture.
Business expansion, moving into new markets, development of new products.
Name a benefit of joint ventures.
- JV partners benefit from each other’s expertise and resources.
- Each JV partner might have the option to acquire in the future the JV business on agreed terms.
- Reduces the risk of a growth strategy.
Name 2 drawbacks of a joint venture.
- Risk of a clash of organisational structures.
- Objectives of each JV partner may change, leading to conflict.
- Imbalance of levels of expertise, investment or assets brought into the venture.
- JV business may fail.
Strategic Alliance
An arrangement between two companies that have decided to share resources to undertake a specific, mutually beneficial project.
What’s the difference between a joint venture and strategic alliance?
A SA is less involved and less permanent. In an SA the two or more companies remain separate entities, unlike JVs where a new entity is formed.
Name a problem with strategic alliances.
- Often no better off at the end than if you went alone.
- Legal disputes over who owns what.
- Expensive and difficult to coordinate.
Aim
Overall target and broader than objectives.
Mission Statement
The overriding goal of the business and the reason for it’s existance.
Corporate Objectives
Objectives of the business as a whole and cover a wide range of key areas.
Functional Objectives
Relate to specific functions of a business such as marketing/operations.
Unit Targets
Similar to functional objectives but are more focused on individuals.
What does SMART objectives stand for?
Specific Measurable Achievable Relevant Time Bound
Name 3 influences/constraints on objectives.
Finance, communication, conflicts, legislation, economy, competition.
