Learning objectives for unit 1

Question 1

Distinguish types of business structures.

Answer 1

• Sole Proprietorship:
  A sole proprietorship (the sole trader/proprietor or a “one-man show”) is a type of business owned and controlled by one person only-the simplest, yet riskiest type of business structure in Singapore.
• Partnership:

i) General Partnership:
A general partnership closely resembles to sole proprietorship. (e.g: graphic design business, one partner could sell accounts, while the other partner create advertisement and marketing strategy.)

The common features are as follow:
 It is not a separate legal entity from the business owners.
 The partners are personally liable for all the debts and losses of the partnership.
 It can sue or be sued in the partners’ names.
 If any partner dies or becomes bankrupt, the partnership is automatically dissolved unless parties agreed otherwise in their contract.

ii) Limited Partnership:
A limited partnership differentiates its members as ‘General Partners’ and ‘Limited Partners’. There is no limit on the number of partners, but needs at least one general partner and a limited partner to form this structure.

The common features of a limited partnership are as follow:
 The liability of the limited partner(s) is only up to the amount specified in the partnership agreement.
 The liability of the general partner(s)is unlimited.

iii) Limited Liability Partnership (LLP):
An LLP gives owners the flexibility of operating as a partnership while having a separate legal identity like a private limited company. The LLP is seen as a body corporate and has a legal personality separated from its partners. The LLP has perpetual succession, which means any change in the partners will not affect its existence, rights or liabilities. Medical partnerships, law, architect and accounting firms are common examples of Limited Liability Partnership.

The common features of a LLP are as follow:
 Has separate legal existence from its owners.
 Partners of the LLP are not personally liable for any business debts incurred by the LLP.
 A partner may, however, be held personally liable for claims from losses resulting from his own wrongful act or omission, but will not be held personally liable for such wrongful acts or omissions of any other partner of the LLP.
 Able to acquire and hold property in its name.

• Private Limited Company:
  The most preferred type of entity among business owners in Singapore is the Private Limited Company. Its shares are not made available to the public and are held privately. The shareholders must not be more than 50. The names of this type of entities have the suffix ‘Private Limited’ or ‘Pte Ltd’.

> Exempt Private Limited Company (EPC):
A Private Limited Company which is exempted from statutory annual audit. To be an EPC, the business must not have more than 20 shareholders. Any corporate shareholder, meaning no corporation should have beneficial interest in its shares. An annual revenue of more than S$5 million.

The common features of a Pte Ltd and/or Exempt Pte Ltd Company are as follow:
 Separate legal entity with limited liability- a private limited company has its own legal identity separate from its shareholders and directors. Thus, the liability of the company’s shareholders is limited to the amount used to purchase shares in the company.
 Better tax benefits-better corporate tax rate, no capital gains tax; and once income is taxed at corporate level, dividends are tax-free.
 Ease of raising capital to expand business -by issuing additional shares to current shareholders or by bringing in new shareholders without having to change the structure of the business. This is possible with some of the other corporate structures.
 Ease of transfer of ownership and perpetual succession -ownership can be transferred easily through the sale of shares. The business existence does not rely on the continued membership of any member. If a shareholder dies or resigns, the business can continue.
 Increased credibility - investing time and effort in setting up a company gives potential employees, customers, suppliers, partners and investors the impression that the business is serious and scalable.

• Public Limited Company:
  There are two types of public companies in Singapore:

i) A company which raises capital from the public-includes all those companies whose shares are listed on the Singapore Exchange Limited (SGX), either on the mainboard or the secondary board known as Catalist. A company with more than 50 shareholders is a public company even if its shares are not listed.

ii) A company limited by guarantee - commonly used for charities or to serve other national or public interests.

Question 2

Differentiate between main industry types.

Answer 2

• Primary:
  This refers to businesses involved in the extraction of natural resources. Primary industries have little choice in choosing its location as it often depends on the geographical locations of the natural resources.
  (e.g. fishing, agriculture, mining and oil drilling.)
• Secondary:
  This refers to businesses involved in the conversion of raw materials, obtained from the primary industries, into manufactured components or finished goods.
  (e.g. furniture making from wood, computer manufacturing from electronic components, petrol refining from crude oil and tyre making from rubber.)
• Tertiary:
  This refers to the service industry, with businesses involved in the provision of supporting services to any industry or to final consumer.
  Service businesses are usually located close to where the demand/market is.
  (e.g. hairdressing, clothing, retail, transportation, banking and insurance services, communication, wholesaling and retailing, hospitality, professional and business services (i.e. business consultancy).)
• Private Sector Organisations:
  The private sector is made up of organisations that are owned and run by private individuals to further their own interest, earn maximum profits and achieve the best possible return on the money they have invested. The scale of business in the private sector ranges from small one-man operated business to large businesses that have thousands of owners (shareholders).
• Public Sector Organisations:
  The government directly or indirectly owns public sector organisations or state owned enterprises. They provide a range of goods and services to the community. e.g. a legal system of laws and courts to settle disputes, the monetary system and national defence system to protect our resources. The scale of business in the public sector is generally large.
  In Singapore, the public sector (or the government) is involved in various economic activities through the following three types of public enterprises:

i) Ministries:
Organisations that set the strategic and policy direction for the various sectors. They oversee the development and regulation of the various sectors under their purview. For example,Ministry of Defenceand Ministry of Education.

ii) Statutory Boards:
Organisations established by an Act of Parliament, specialise in carrying out specific plans and policies of the Ministry with higher autonomy. (e.g. Institute of Technical Education and Economic Development Board.)

iii) Government-linked companies:
Organisations incorporated under the Companies Act, which are engaged heavily in diverse sectors of the national economy. Most of these companies may be wholly or partially owned by the government.
(e.g. Singapore Airlines, Singapore Technologies Engineering and DBS Bank Ltd.)

Question 3

Determine suitable business models for product or service.

Answer 3

• Manufacturer:
  A manufacturer makes finished products from raw materials. It may sell directly to the customers or sell it to an intermediary, i.e. another business that sells it finally to the customer.
  (e.g. Ford, 3M and General Electric.)
• Distributor:
  A distributor buys products from manufacturers and resells them to the retailers or the public.
  (e.g. car dealerships. In Singapore, Cycle & Carriage carry a diverse stable of vehicles from Citroën, DS Automobiles, Maxus, Mercedes-Benz, Mitsubishi, Kia, etc.)
• Retailer:
  A retailer sells directly to the public after purchasing the products from a distributor or wholesaler.
  (e.g. Amazon, Daiso and Cold Storage.)
• Franchise:
  A franchise can be a manufacturer, distributor or retailer. Instead of creating a new product, the franchisee uses the parent business’s model and brand while paying royalties to it.
  (e.g. McDonald’s, Pizza Hut, Subway, KFC and various Bubble Tea brands.)
• Brick-and-Mortar:
  E-Commerce business model is an upgradation of the traditional brick-and-mortar business model. It focuses on selling products by creating a web-store on the internet.
• E-Commerce:
  E-Commerce business model is an upgradation of the traditional brick-and-mortar business model. It focuses on selling products by creating a web-store on the internet.
  (e.g. dropshipping and subscription)
• High Touch and Low Touch:

A high touch model is whereby a customer places trust and partnership with a company, a specific individual or team at the company.
It is a “person-centric” model whereby the relationship between a salesperson and other individuals have a major impact on the sale and retention of the customer. In a broader sense, any trust-oriented or relationship-driven business is “high touch.”

The low touch model focuses on removing human interaction from each step of the sales funnel, as well as decreasing barriers to adoption of products/services, by simplifying offerings. Human interaction is replaced with automated process to facilitate the sales experience. This reduces customer acquisition cost and overall headcount in sales and marketing.

Question 4

Evaluate the internal and external environment of an organisation.

Answer 4

SWOT analysis:
Internal:
- Strength
- Weakness
External:
- Opportunity
- Threats
———————
PESTLE:
- Political: Factors determining the extent to which a government influences the economy or a certain industry. (e.g. government policies, trading policies)
- Economic
- Social: Factors relating to culture aspects, attitudes, beliefs that will affect the demand for a company’s products and how the business operates. (e.g. demographics, lifestyle trends)
- Technology:
- Legal
- Environment:

Question 5

Describe the role and responsibility of the main departments of an organisation.

Answer 5

• Production:
  The Production function undertakes the necessary activities to provide products. Its main responsibilities are:
  > Production planning and scheduling.
  > Control and supervision of the production workforce.
  > Managing product quality (including process control and monitoring).
  > Maintenance of plant and equipment.
  > Control of inventory.
  > Deciding the best production methods and factory layout.

Close collaboration is necessary between production and various other functions within the organisation, for example:

> Research and Development: concerning the implications of product design for production methods and cost.
Marketing: concerning desired product functionality, appearance, quality, durability and so on.
Finance: concerning the availability of funds for purchase of new equipment and the acceptability of inventory levels.
Human Resource Management: concerning staff motivation implications of job design and production methods.

Several good management principles in the production function also apply to the service industry; whereby intangible values are produced. (e.g. customer service, management, advice, knowledge, design, data and experiences.)

• Research and Development function:
  The Research and Development (R&D) function is concerned with developing new products or processes and improving existing products/processes. R&D activities must be closely coordinated with the organisation’s marketing activities to ensure that the organisation is providing what its customers want in the most efficient, effective and economical way.
• The Purchasing function:
  In buying goods and services, purchasing managers must consider the purchasing mix-quantity, quality, price and delivery.
  The Purchasing function is concerned with acquiring goods and services for use by the organisation.
  (e.g. raw materials and components for manufacturing and production equipment.)
  The responsibilities of this function usually extend to buying goods and services for the entire organisation.
  (e.g. office equipment, furniture, computer equipment and stationery.)
• The Marketing function:
  Marketing is concerned with identifying and satisfying customers’ needs at the right price. It involves researching customers’ wants and analysing how to satisfy them. Effective marketing and planned promotional activities will also communicate with the target market about the company’s products and services, driving long-term success, profitability and growth in market shares. This function also involves creating various marketing strategy and monitoring competitor’s activities. A fundamental activity in marketing is managing the marketing mix or the ‘4Ps’ –product, price, promotion and place.
• The Human Resources function:
  The HR function is mainly concerned with the following:
  > Recruitment and selection: Ensuring that the right people are recruited to the right jobs.
  > Training and development: Enabling employees to carry out their responsibilities effectively and make use of their potential.
  > Employee relations: Including negotiations over pay and conditions.
  > Grievance procedures and disciplinary matters: Dealing with complaints from employees or from the employer.
  > Health and Safety matters: Making sure employees work in a healthy and safe environment.
  > Redundancy procedures: Administering a proper system that is seen to be fair to all concerned when deciding on redundancies and agreeing redundancy payments.
• The Accounting and Finance function:
  The Accounting and Finance function is concerned with the following:
  > Financial record keeping of transactions involving monetary inflows or outflows.
  > Preparing financial statements (the income statement, balance sheet and cash flow statement) for reporting to external parties such as shareholders. The financial statements are also the starting point for calculating any tax due on business profits.
  > Payroll administration-paying wages & salaries, maintaining appropriate income tax & insurance records, etc.
  > Preparing management accounting information and analysis to help managers plan, control and make decisions.