understanding business Flashcards
what are 3 sectors of economy
private, public, third
what are the 4 sectors of industry
primary, secondary, tertiary, quaternary
what are the 4 factors of production
land, labour, capital, enterprise
how is a private limited company owned controlled and financed
owned -by at least 1 share holder
controlled -by a board of directors
financed- shares sold privately to family and friends
2 advantages of a private limited company
more finance can be raised from shareholders and leaders.
shares are not sold to the public , control of the company is not lost to outsiders
2 disadvantages of a private limited company
shares can’t be sold to the general public.
must abide by the companies act.
how is a public limited company owned controlled and financed
owned- by at least two shareholders
Controlled- by a board of directors
Financed- shares sold publicly on the stock exchange
2 advantages of a public limited company
huge amounts of finance can be raised by selling shares on the stock exchange
limited liability - only lose money you invest
easy to borrow money due to their large size therefore easier to grow and diversify
2 disadvantages to a public limited company
no control over who buys shares
threat of taking over as the public can buy shares there is always the threat that someone may buy enough to take over
what is a franchisor
a franchisor sells the right to use a business idea in a particular location
what is a franchisee
a franchisee buys the right from a franchisor to copy a business format
what are 2 advantages of a franchisor
fast method of expanding without heavy investment
provides royalty payments
2 disadvantages to a franchisor
only receive a share of the profits
poor franchisee can damage a companies reputation
2 advantages of a franchisee
reduced marketing costs
reduced risk of failure as brand is already established
2 disadvantages to a franchisee
products, price and layout of store may be dictated
Initial set up cost is expensive
what is a multinational
a company which has headquarters in one country but has assembly of production facilities in other countries e.g cocacola
what are 2 advantages of a multinational
cost of land and labour will be cheaper in developing countries for example sweat shops in Far East.
increase market shares- as this will mean they can target market wider this increases brand awareness
two disadvantages of a multinational
cultural barriers - mc Donalds can’t sell beef in India
exploitation of labour - workers can work for below minimum wage e.g. Nike
how is the public sector owned controlled and financed
owned- by the government
controlled - by local/central government
financed- through taxes
give an example of public sector
NHS, police scotland…
how is the third sector owned controlled and financed
owned- by trustees
controlled- board of trustees
financed- grants from many fund raising and public donations
3 advantages of social enterprise
help tackle social problems it has chosen
attract good quality staff who want to help the social cause
some funding/support is only available to social enterprises
what are 3 private sector aims and objectives
to survive and continue trading, every business needs to make enough profit
maximise profit, make as much profit possible to allow the business purchase new resources
improving working conditions of employees will motivate existing staff and attract new staff into the business
reduce carbon footprint can improve company reputation as they are seen as eco friendly
what are 3 public sector aims
to provide a high quality service
to stay within a specific budget
to make good use of taxpayers money
2 third sector aims
to raise awareness for a good cause
maximise donations
what does PESTEC stand for
Political
Economic
Social
Technology
Environment
Competitive
what is organic growth
when a business grows naturally
what are 2 advantages of organic growth
hiring new staff will bring new ideas
investing in equipment will increase production
2 disadvantages of organic growth
can be a slow method of growth
restricted to the amount of finance available
describe horizontal integration
when two companies at the same stage of production process merge or takeover each other
2 advantages of horizontal integration
removes competitor from the market
business gains greater market share
1 disadvantage of horizontal integration
can be expensive to purchase another company
describe forward vertical integration
when a business takes over a company at a later stage in the production process
2 advantages of forward vertical
guarantees an outlet to sell products
more control over pricing and product display
1 disadvantage of forward vertical
entering new markets may affect core activities as resources and enterprise need to be shared
describe backward vertical integration
when a business takes over a company at an earlier stage in the production process e.g business taking over suppliers
2 advantages of backward vertical
greater control over quality measures ensuring high standard of goods
guarantees its own supply of inventory
1 disadvantage of backward vertical
entering new markets may affect core activities as resources and enterprise need to be shared
describe diversification
when firms move into new markets that are different from there core business
1 advantage of diversification
allows companies to spread risk and grow and expand brand name
describe lateral integration
when a business moves into a different market but within a related industry e.g hairdresser merging with a beauty therapist
2 advantages of lateral integration
spreads risk across different markets
targets new markets increasing customer base
1 disadvantages of lateral integration
may not have the knowledge required to successfully run the new business
identify 6 ways of achieving growth
merger, takeover, acquisition, adversising, product development, increasing staff
identify 6 ways of achieving growth
merger, takeover, acquisition, adversising, product development, increasing staff
describe merger (achieving growth)
when two companies decide to join together in equal terms
e.g. when Halifax and bank of Scotland merged to create HBOF
describe takeover ( achieving growth )
when a company buys out a rival . Kraft food bought Cadbury in 2010 for £12 billion
describe acquisition ( achieving growth )
when one company buys assets or operations of another company
describe advertising ( achieving growth)
can be used to increase awareness of the company’s products and can be used to inform customers on new products
describe product development ( achieving growth )
allows a company to target new markets and expand their product range
describe increasing staff ( achieving growth )
the productivity of a business will grow and there may be increased levels of customer satisfaction
identify 6 ways of funding growth
retained profits,diversment, demerger, buy-in , buyout, outsourcing
describe retained profits (funding growth)
a business can hold back profit each year from its shareholders to reinvest into the business
describe divestment (funding growth )
when a company sells off an asset to raise finance
describe demerger ( funding growth)
when a firm divides or breaks into more than one company
describe buy-in ( funding growth )
this is when managers who are not employed by the company purchase the business as they believe they can run it more profitably
describe buy-out (buy out)
when managers or employees who are currently employed by the business purchase the business from the owners
describe out sourcing ( funding growth )
when a company hires another business to do some work for them. Many firms outsource cleaning or IT operations.
what are two advantages of outsourcing
outsourced firm provides specialist eqipment- saving costs.
allows firms to focus on their core activity
two disadvantages of outsourcing
the organisation will have reduced control which may cause conflict between staff.
firm my take a long time to complete the job
two advantages of tall structure
staff gain more support from their line manager
more opportunities for promotion
two disadvantages of tall structure
span of control and chain of command is long
many levels of hierarchy
two advantages of flat structure
few levels of hierarchy
line of communication are short- quick response
2 disadvantages of flat structure
fewer promotional opportunities can lead to staff leaving
wide span of control, employees may feel stress
describe entrepreneurial structure
found in smaller businesses where the owner/manager makes decisions without consulting with staff
what is one advantage of entrepreneurial structure
staff are clear who is in charge
what is a disadvantage of entrepreneurial structure
staff can become demotivated due to not being empowered
1 advantage of matrix structure
a good way of having different viewpoints and skills involved in a project
1 disadvantage of matrix structure
very expensive if many different teams are required for the project
describe centralised structure
most decisions are taken by senior managers and then passed down the organisational hierarchy
2 advantages of centralised structure
decisions are made to benefit the organisation as a whole
they can lead to greater consistency as each branch of the business will be using standardised proceedures
2 disadvantages of centralised structure
senior managers carry heavy burden of decision making
this structure are less responsive to localised external pressures
describe decentralised structure
each department within an organisation has the authority to make their own decisions
one advantage of decentralised structure
decisions can be specific to the needs of the department or local area
one disadvantage of decentralised structure
overall control of the organisation is delegated to department managers
Identify the tree types of decision making
Strategic, tactical and operational
describe strategic decision making
- made on long term basis
- set out company objectives
- made by top management usually owners
describe tactical decision making
-made on monthly/yearly basis
-made by middle management
-made to help achieve main objectives e.g launching new products
describe operational decision making
- made on daily/weekly basis
-made by junior managers and supervisors
-often reactive when change occurs e.g. calling repair service
