Topic 1 Flashcards
Advantages and disadvantages of sole traders
Advantages:
- easy and quick to set up
- complete control
Disadvantages:
- unlimited liability
- no continuity
Advantages and disadvantages of partnerships
Advantages:
- more ideas/ skills
- continuity
Disadvantages:
- unlimited liability
- shared profits
Advantages and disadvantages of a PLC
advantages:
- easy to raise finance
- limited liability
Disadvantages:
- possibility of a takeover
- must disclose company info
Definition of capital gains
Share price increase
Private, public and third sector
Private sector :
- Owned by individuals or companies. Mainly run for profit
Public sector :
- Owned by the tax payer run by the government on behalf of the public. Main purpose is to provide a product or service.
Third sector:
- Voluntary and community groups, charities, social enterprises, cooperatives. Value driven, public welfare, social goals.
Franchisee, Franchise and Franchiser
Franchisee : Individual buying the right to use the brand name.
Franchise: Business
Franchiser: Brand owner
Advantages and disadvantages for the franchiser
Advantages:
- products necessary for the franchise to operate are under the franchises control.
- the firm may not have to spend large amounts of money in order to expand.
Disadvantages:
- costs of supporting the franchisees
- possibility of conflict with franchisee if they create a bad reputation
Advantages and disadvantages for the franchisee
Advantages:
- lower risk (proven business concept)
- support advice and training
Disadvantages:
- supplies have to be bought from franchiser
- profit is shared
Cooperatives definition and advantages and disadvantages
Definition: a business that is owned and run by its members rather than being distributed to shareholders.
Advantages:
- customers are usually loyal supportive
- higher quality service is likely to be provided (as customers are likely to be members)
Disadvantages:
- capital can be limited (only what members contribute)
- slower decision making (involvement of members)
Barriers to exit
The factors that could prevent a firm from leaving the market. Eg, redundancy costs for workforce, exit fees from rental agreements, contracts with suppliers, selling off capital.
Market power
The ability of a firm to influence or control the terms and conditions, on which goods are bought and sold.
Market dominance
A measure of market share compared to competitors.
Mergers
2 companies merge together and shareholders merge. Form 1 large business.
Acquisition/ takeovers
This is where control of another company is achieve by buying a majority of its shares.
Advantages and disadvantages of external growth
Advantages:
- will result in an increase in revenue and therefore market share.
- may be able to meet customers needs more effectively with combination of resources
Disadvantages:
- can be expensive
- managers may lack experience to deal with the other businesses
Collusion
Takes place when rival companies cooperate for their mutual benefit. When two or more parties act together to influence production, and for price levels, thus preventing for competition. Common in oligopolies.
Operational efficiency
More production to optimise processes, reducing time and waste. Eg. Reducing time and waste per cake.
Benefits for business of external growth
- may be able to meet customer needs more effectively with combination of resources.
- may experience economies of scale
Organic/ internal growth
Involves expansion from within a business. Eg. Opening new stores, launching new products, investing in new technology, employing more workers.
Advantages and disadvantages of organic growth
Advantages:
- business remains in control of all operations
- mitigates complications of external growth eg. Mergers
Disadvantages:
- slow growth as it takes longer than external growth
- must remain competitive
Regulation
- dominance, anti- competitive practices and mergers/ acquisitions can be investigated.
- the competition and markets authority (CMA) are a regulating body
- the CMA can stop mergers and acquisitions going ahead
What can the CMA do
- Apply 10% fine of global turnover
- Directors can be sanctioned for 8 years
- Prison for 5 years
Competitive market
No of firms in market: large number
Ability to control price : none (compete on price)
Barriers to entry : none, minimal
Product differentiation: very little, almost identical products
Examples: farm and dairy
Monopoly
No of firm in the market: one
Ability to control price : high (can set market price)
Barriers to entry: subject to government regulation
Product differentiation: no products that directly compete
Examples: utilities used by as gas and gas
Monopolistic competition
No of firms in market: many sellers (fewer than perfect competition)
Ability to control price : limited
Barriers to entry : few
Product differentiation: emphasis in showing perceived differences in products
Examples: retail, clothing stores, fast food
Oligopoly
No of firms in market: few large firms dominate market
Ability to control price : some
Barriers to entry : many
Product differentiation: some differences
Examples: mobile phone networks
Evaluation ideas
Cost
Objectives
Competition
Information
Time
Local markets definition: advantages and disadvantages
- customer service offer (closer to customers)
- change more quickly to customers needs
- do not benefit from economies of scale as growth is limited
- susceptible to competitors
National markets definition : advantages and disadvantages
- distribute throughout the country
- manufacturing plants (benefit from economies of scale)
- distribution (vehicles, warehouses)
- offers greater profit potential
International markets definition : advantages and disadvantages
- Import and export
- globalisation
International vs multinationals definition
International companies are importers and exporters no investment outside home country. Multinationals have investment (operations) in other countries.
Advantages and disadvantages of multinationals to host nations
- Increase gdp
- Tax for host nation
- domestic businesses may not be able to compete
- impose culture on host nation
External growth types eg. Horizontal
Forward vertical - Further up the supply chain eg. BMW buying a dealership
Backwards vertical - Earlier in the supply chain eg. BMW buying a Tire factory
Horizontal - same stage in the supply chain eg. BMW buying Mini
Diversification - no connection eg. BMW buying McDonald’s
Joint ventures definition : advantages and disadvantages
A joint venture involves two or more businesses pooling their resources and expertise to achieve a particular goal. Risks and rewards are shared.
Advantages:
- Reduces risk (particularly when entering new markets)
- sharing each others expertise (resources, technology, skills)
Disadvantages:
- Disagreements (clash of culture, management style)
- synergy not guaranteed (may be better to go into alone)
Strategic alliance definition : advantages and disadvantages
A strategic alliance is an arrangent between two companies that have decided to share resources to undertake a specific, mutually beneficial, project. Less involved and less permettant than a joint venture.
Advantages:
- grants access to new resources and expertise
- Access to new markets
Disadvantages:
- often no better off at the end than if you ‘went in alone’
- legal disputes over who owns what (especially branding and designs)
Diseconomies of scale definition
They arise when unit costs rise as output rises. Could occur due to the business becoming less effective due to miscommunication in larger businesses. Or workers lack motivation and feel isolated and less appreciated in larger businesses.
Globalisation definition : advantages and disadvantages
A process by which countries and economies have become more interconnected or the world coming together to trade in each others markets.
Advantages:
- larger markets
- cheaper labour (economies of scale)
Disadvantages:
- increases competition
- ethical and environmental issues
International trade definition
This prefers to selling across borders. Eg. The exchange of goods and services between countries.
Trade deficit, quota, tariff definition
Trade deficit : occurs when a country imports more than it exports
Quota : a quota is a limit on the quantity o imports
Tariff: a tax payed on imports
Trading blocs definition : advantages and disadvantages
A group of countries that trade together. They have reduced or removed trade barriers for its members countries.
Advantages:
- access to larger markets
- increased specialisation
Disadvantages :
- increased competition (free trade)
- countries become economically dependent on each other
Advantages and disadvantages of an Ltd
Advantages:
Limited liability
Able to retain control however can still sell shares
Disadvantages
High set up costs
Accounts listed on companies house annually
Primary, secondary and tertiary sectors
Primary: extraction of natural resources
Secondary: manufacturing
Tertiary: providing a service
