Topic 1 Key Terms Flashcards
Cooperatives
for-profit social enterprises set up, owned and run by their members, who might be employees and/or customers.
A company (or corporation)
refers to a limited liability business that is owned by shareholders. A certificate of incorporation gives the company a separate legal identity from its owners (shareholders).
Deed of partnership
the legal contract signed by the owners of a partnership. The formal deeds specify the name and responsibilities of each partner and their proportion of any profits or losses.
Incorporation
there is a legal difference between the owners of a company and the business itself. This ensures
that the owners are protected by limited liability.
An initial public offering (IPO)
occurs when a business sells all or part of its business to shareholders on a public stock exchange for the first time. This changes the legal status of the business to a publicly held company.
Limited liability
restriction on the amount of money that owners of a company can lose if the business goes bankrupt, i.e. shareholders cannot lose more than the amount they invested in the company.
Non-governmental organizations (NGOs)
private sector not-for-profit social enterprises that operate for the benefit of others rather than primarily aiming to earn a profit, such as Oxfam and Friends of the Earth.
Partnerships
type of private sector business entity owned by 2-20 people (known as partners). They share the responsibilities and burdens of running and owning the business.
The private sector
part of the economy run by private individuals and businesses, rather than by the government such as sole traders, partnerships, privately held companies an publicly held companies.
privately held company
a business owned by shareholders with limited liability but whose shares cannot be bought by or sold to the general public on a Stock Exchange.
publicly held company
an incorporated limited liability business that allows shareholders to buy and sell shares in the company via a public Stock Exchange.
public sector
the part of the economy controlled by the government. Examples include state healthcare and education services, the emergency services, social housing and national defense.
sole trader
a self-employed person who runs the business on his/her own. This mean s/he has exclusive responsibility for its success (profits) or failure (unlimited liability).
Social enterprises
revenue-generating businesses with social objectives at the core of their operations. They can be for-profit or non-profit business entities, but all profits or surpluses must be reinvested for that social purpose rather than being distributed to shareholders and owners.
stock exchange
a marketplace for trading stocks and shares of publicly held companies (or public limited companies).
Examples include the London Stock Exchange (LSE) and the New York Stock Exchange (NYSE).
Unlimited liability
a feature of sole traders and ordinary partnerships who are legally liable or responsible for all monies owed to their creditors, even if this means that they have to sell their personal possessions to pay for their debts.
Corporate social responsibility (CSR)
the conscientious consideration of ethical and environmental practice related to business activity. A business that adopts CSR acts morally towards all of its various stakeholder groups and the well-being of society as a whole.
ethical code of practice
the documented beliefs and philosophies of an organization, so that people know what is considered acceptable or not acceptable within the organization.
Ethical objectives
organizational goals based on moral guidelines, determined by the business and/or society, which direct and determine decision-making.
Ethics
moral principles that guide decision-making and business strategy. Morals are concerned with what is considered to be right or wrong, from society’s point of view.
mission statement
refers to the declaration of an organization’s overall purpose. It forms the foundation for setting the objectives of a business.
Objectives
specify what an organization strives to achieve. They are the goals of an organization, such as growth, profit, protecting shareholder value and ethical objectives.
Strategic objectives
longer-term goals of a business, such as profit maximization, growth, market standing and increased market share.
Strategies
various plans of action that businesses use to achieve their targets. They are the long-term plans of the organization as a whole.
Tactical objectives
short-term goals that affect a unit of the organization. They are specific goals that guide the daily functioning of certain departments or operations.
Tactics
the short-term plans of action that businesses use to achieve their objectives.
vision statement
an organizations long-term aspirations i.e, where the business ultimately wants to be.
Conflict
refers to situations where stakeholders have disputes or differences regarding certain issues or matters. This can lead to arguments and tension between the various stakeholder groups.
Customers
the clients of a business. As a key external stakeholder group, customers seek to have value for money, such as competitive prices and good quality products.
Directors
senior executives who have been elected by the company’s shareholders to address business activities on behalf of their owners.
Employees
staff of an organization. They have a stake (an interest and involvement) in the organization they work for.
External stakeholders
individuals and organizations not part of the business but have a direct interest in its activities oup and performance. Examples include customers, suppliers and the government
Financiers
the financial institutions and individual investors who provide sources of finance for an organization. They are interested in the organization’s ability to generate profits and to repay debts.
Internal stakeholders of a business
members of the organization, namely the employees, managers, directors and shareholders (owners) of the business.
Government
the ruling authority within a state or country. As an external stakeholder group, the government is interested in businesses complying with the law with regards to the conduct of business activities.
local community
refers to the general public and local businesses that have a direct interest in the activities of an organization, namely to create jobs and to conduct business activities in a socially responsible way.
Managers
an internal group of stakeholder responsibly for overseeing the daily operations of the business.
Pressure groups
consist of individuals with a common concern (such as environmental protection) who seek to place demands on organizations to act in a particular way or to influence a change in their behaviour.
Stakeholder conflict
refers to differences in the varying needs and priorities of the various stakeholder groups of a business.
Stakeholder mapping
a model that assesses the relative interest of stakeholders and their relative influence (or power) on an organization.
Shareholders (or stockholders)
the owners of a limited liability company. Shares in a company can be held by individuals and other organizations.
Stakeholders
individuals or organizations with a direct interest (known as a stake) in the activities and performance of a business, such as shareholders, employees, customers and suppliers.
Suppliers
an external stakeholder group that provide business with stocks of raw materials, component parts and finished goods needed for production. They can also provide commercial services, such as maintenance and technical support.
Gross domestic product (GDP)
the value of a country’s annual output or national income.
host country
any nation that allows a multinational company to set up in its country.
multinational company (MNC)
an organization that operates in two or more countries, with its head office usually based in the home country.
Protectionist policies
measures imposed by a country to reduce the competitiveness of imports, such as tariffs (import taxes), quotas and restrictive trade practices.
Adding Value
The practice of producing a good or service that is worth more than the cost of the resources used in the production process.
Forward vertical integration
a growth strategy that occurs with the amalgamation of a firm operating at a later stage in the production process, such as a book publisher acquiring book
retailers.
Franchising
refers to an agreement between a franchisor
selling its rights to other businesses (franchisees) to allow them to sell products under its corporate name in return for a fee and regular royalty payments.
Horizontal integration
an external growth strategy that occurs when a business amalgamates with a firm operating in the same stage of production.
Internal diseconomies of scale
occur due to internal problems of mismanagement, causing average costs of production to increase as a firm grows.
Internal economies of scale
occur within a particular
organization (rather than the industry as a whole) as it grows
in size.
Internal growth (also known as organic growth)
occurs when
a business grows using its own capabilities and resources to
increase the scale of its operations and sales revenue.
joint venture
a growth strategy that combines the
contributions and responsibilities of two or more different
organizations in a shared project by creating a separate legal
enterprise.
Lateral integration
refers to external growth of firms that have
similar operations but do not directly compete with each other,
such as PepsiCo acquiring Quakers Oats Company.
Marketing economies of scale
occur when larger businesses
can afford to hire specialist managers, thereby improving the
organization’s overall efficiency and productivity.
merger
a form of external growth whereby two (or more)
firms agree to form a new organization, thereby losing their
original identities.
The optimal level of output
the most efficient scale of
operation for a business. This occurs at the level of output
where the average cost of production is minimized.
The purchaser
refers to the acquiring company in an acquisition
or the buyer of another company in a takeover.
Purchasing economies of scale
occur when larger organizations
can gain huge cost savings per unit by purchasing vast quantities
of stocks (raw materials, components, semi-finished goods and/
or finished goods).
Risk bearing economies of scale
occur when large firms can
bear greater risks than smaller ones due to having a greater
product portfolio.
Specialization economies of scale
occur when larger firms can
afford to hire and train specialist workers, thus helping to boost
their level of output, productivity and efficiency.
Strategic alliances
formed when two or more organizations
join together to benefit from external growth, without having to
set up a new separate legal entity.
Synergy
a benefit of growth, which occurs when the whole is
greater than the sum of the individual parts when two or more
business operations are combined. Synergy creates greater
output and improved efficiency.
takeover (also referred to as hostile takeover)
occurs when
a company buys a controlling interest in another firm without
the prior agreement or approval of the target company’s Board
of Directors.
target company
refers to the organization that is purchased
by another in an acquisition or takeover deal.
Technical economies of scale
are cost savings by greater use
of large-scale mechanical processes and specialist machinery,
such as mass production techniques which help to cut average
costs of production.
Vertical integration
takes place between businesses that are at
different stages of production.
acquisition
a method of external growth that involves
one company buying a controlling interest (majority stake)
in another company, with the agreement and approval of the
target company’s Board of Directors.
Average cost
refers to the cost per unit of output.
Backward vertical integration
occurs when a business
amalgamates with a firm operating in an earlier stage of
production, such as a car manufacturer taking over a supplier
of tyres or other components.
Conglomerates
businesses that provide a diversified range
of products and operate in a range of different industries.
demerger
occurs when a company sells offa part ofits business,
thereby separating into two or more businesses. It usually
happens due to conflicts, inefficiencies and incompatibilities
following an earlier merger of two or more companies.
Diseconomies of scale
the cost disadvantages of growth.
Average costs are likely to eventually rise as a firm grows due to
a lack of control, coordination and communication.
Economies of scale
refer to lower average costs of production
as a firm operates on a larger scale due to gains in productive
efficiency, such as easier and cheaper access to source of finance.
External diseconomies of scale
occur due to factors beyond its
control which cause average costs of production to increase as
an industry grows.
External economies of scale
occur when an organization’s
average cost falls as the industry grows. Hence, all firms in the
industry benefit.
External growth (or inorganic growth)
occurs when a business
grows and evolves by collaborating with, buying up or merging
with other organizations.
Financial economies of scale
cost savings made by large
firms as banks and other lenders charge lower interest (for
overdrafts, loans and mortgages) because larger businesses
represent lower risk.
Adding value
the practice of producing a good or service
that is worth more than the cost of the resources used in the
production process.
Businesses
organizations involved in the production of Wants are people’s desires, i.e. the things they would like to goods and/or the provision of services. have, such as new clothes, smartphones, overseas holidays and
jewellery.
Consumers
people or organizations that actually use a product.
Customers
the people or organizations that buy the
product.
entrepreneur
an individual who plans, organizes, and
manages a business, taking on financial risks in doing so
Entrepreneurs
people who manage organize and
plan the resources needed for business activity in pursuit of
organizational objectives. They are risk takers who exploit
business opportunities in return for profits.
Entrepreneurship
the management, organization, and
planning of the other three factors of production. The success
or failure of a business rests on the talents and decisions of the
entrepreneur.
Goods
physical products produced and sold to customers,
such as laptops, books, contact lenses, perfumes and children’s
toys.
Needs
the basic necessities that a person must have to
survive, including food, water, warmth, shelter and clothing.
Primary sector
refers to businesses involved in the cultivation
or extraction of natural resources, such as farming, mining,
quarrying, fishing, oil exploration and forestry.
Production
the process of creating goods and/or services,
adding value in the process.
Quaternary sector
a sub-category of the tertiary sector,
where businesses are involved in intellectual and knowledge-
based activities that generate and share information, such as
research organizations.
Secondary sector
refers to businesses concerned with the
construction and manufacturing of products.
Services
intangible products sold to customers, such as
the services provided by airlines, restaurants, cinemas, banks,
health and beauty spas, schools and hospitals.
Tertiary sector
refers to businesses involved with the provision
of services to customers.
Wants
People’s desires, i.e. the things they would like to have such as new clothes, smartphones, overseas holidays and jewelry
