Understanding Business Flashcards
Sectors of industry
•primary: organizations involved in extraction of natural resources
e.g mining, farming
•secondary: organizations involved in manufacturing products
e.g. Nike, Hienz
•tertiary: organizations involved in the provisions of a service
e.g. taxi driver, baker
•quarteriary: organizations based on knowledge that provide information services
e.g. medical research
Secotrs of economy
Private: owned by individuals for profit
Public: owned by the government to provide services
Third: non profit making organizations set up by founders for a cause
Private sector: Control, Ownership, Finance, Objectives
C: sole trader, partner, board of directors
O: private individuals
F: owners savings, share issue (money shares were bought at), grant, bank loan
O: make maximum profit
Examples: Nike, McDonalds
Public sector: Control, Ownership, Finance, Objectives
C: PM, First minister, MPs, MSPs
O: the government
F: tax payers money
O: to provide a service
Examples: NHS, BBC, Schools
Third sector: Control, Ownership, Finance, Definition
C: board of trustees, committee
O: founders
F: fundraising, donations, subscriptions
D: organization that supports a good cause
Examples: British hart foundation, cancer research, melrose rugby club
Private Limited company DEFINITION
Businesses with that own legal identity which exist in the private sector of the economy
Owned by shareholders
Controlled by a board of directors
Invite people to buy shares
Public limited company DEFINITION
Businesses with their own legal identity, which exist in the private sector of the economy
Owned by shareholders
Controlled by a Board of Directors,
Sells shares in the public stock exchange
Private limited company ADVANTAGES
Limited liability
Greater control as people are invited to buy shares
Do not have to disclose as much financial information to the public
Not subject to hostile takeovers as sale of shares are agreed
No minimum share capital
Public limited company ADVANTAGES
Limited liability,
Possible to raise large volumes of capital by selling shares on the stock exchange
Large companies can benefit from economies of scale
•bulk buying discounts
•reduced production costs
May be attractive to investors as they can re sell shares
Private limited company DISADVANTAGES
Set up requires registering with companies, house admin and legal costs can be time-consuming and expensive
Capital might be limited as LTDs to not sell shares on the stock exchange
Large businesses can become difficult to manage
Public limited company DISADVANTAGES
Set up requires registering with companies house admin and legal costs can be time-consuming and expensive
Have to disclose full financial information which can be viewed by public and competition
Can grow so large that they can become difficult to manage
Are subject or hostile takeovers
Multi National Compnay
(MNC) A business with headquarters in one country that has operations, production facilities, and other countries MMC‘s have subsidiaries in more than one country
MNCs advantages
Can increase market share, sales, brand exposure, by entering new markets
Secure cheaper premises, labour, raw materials, which can reduce operating costs
To avoid tax, trade barriers, and tariffs
Gain access to natural resources
May be government grants for setting up productions
Save money on transporting goods to marketplace/customers
Cheaper legislation may be more relaxed in the host country- production can be cheaper- working hours minimum wage ect
Increasing sophistication of ICT (video/audio conference means it’s much easier to run an MNC
MNCs disadvantages
Language barrier can slow communication
Poor infrastructure may cause problems transporting finished goods
If seen to be exploiting cheap labour
Franchisee definition
Business that pays to operate under the franchisers brand
Franchiser definition
Original/parent business that sells the rights to use their idea/brand
Franchisee advantages
•less risky as adopting a proven business model and selling a well known product/brand with exhausting customers
•franchiser Carrie’s our national advertising
•may get support and advice from franchiser
Franchisee disadvantages
•restricted decision making and creativity
•initial high investment and % of profits go to franchiser
•reputation also depends on other branches and franchisers happenings
Franchiser definition
Original/parent business that sells the rights to use their business idea/identity
Franchiser advantages
•increase market share and geographical location and brand exposure quickly
•receives % of profit from franchisee
•franchisees are highly motivated bc of original high investment- franchiser benefits from franchisees hard work
Franchiser disadvantages
•franchisee may ruin business rep
•franchisee still gets some of the profit
•loss of control
Business objectives
•CSR
•increase market share
•maximize profit
•growth
•maximize sales
•satisfice profits
•provide high quality service
• managerial objectives
Growth six types
Lateral
Conglomerate
Forwards vertical integration
Backwards vertical integration
Horizontal
Lateral
