Understanding Business Flashcards
Revise Unit 1
Explain 3 reasons why an organisation would become a PLC. 3 Marks
Shares can be sold on the stock exchange therefore large amounts of finance can be raised.
Large companies can often operate more cheaply than small companies by utilising economies of scale. Therefore they can spend money in other areas of the business.
Finally, there are greater opportunities for raising finance and lenders are more likely to give money as they have greater confidence it will be paid back.
Many companies are now classed as multinationals. Discuss operating as a multinational. 6 Marks
One advantage is that the organisation may be given grants from governments to locate in that country and the grants will not require to be paid back improving their financial position.
Another is that organisations will become larger which may result in them being safer from takeovers.
Finally, it can allow organisations to increase their global sales which in turn should increase their overall profits.
On the other hand, legislation may be different in other countries which may require the organisation to alter its product/service.
Different languages will exist and this may mean that organisations have to employ specialist linguists to work with the organisation to avoid communication problems.
Finally, exchange rates could affect purchasing goods and paying employees in different countries.
Describe the main characteristics of a multi-national corporation. 4 Marks
Tip: NOT advantages or disadvantages.
MNC has a distinct ‘home’ base country.
They involve operations in several different countries
They will have a global brand. Examples include McDonalds and Coca-Cola.
Can greatly influence local economies
Describe possible methods of growth for a public limited company. 5 marks
One method is Horizontal Integration. This is when two businesses from the same sector of industry and in direct competition become one business.
Another is Backward Vertical Integration. This is when a business takes over/merges with a business in an earlier stage of production (a business taking over their supplier).
Another is Forward Vertical Integration. This occurs when a business takes over/merges with a business in a later stage of production (a business takes over their customer).
Businesses can also grow Internally (also known as organic growth). They do this by increasing the number of stores and launching new products.
Finally businesses can become a Conglomerate. This is when organisations in completely different industries combine together. An example is RBS buying over Marriot Hotels.
Explain how Horizontal Integration can lead to increased sales or profits. 3 Marks
Businesses producing the same products combine together therefore taking advantage of economies of scale resulting in lower cost per unit and an increased end profit.
By becoming larger they should become better known in the market resulting in brand loyalty and therefore increased sales.
They can dominate the market due to reduced competition. This means that they can set higher prices without putting off customers.
Discuss the effects of outsourcing on an organisation. 6 Marks
Advantages include allowing the main business to concentrate on doing what they are good at.
There is also less labour and equipment is required for outsources activities which saves money.
Finally the work should be high-quality from the outsourced business as it should have greater expertise and specialist equipment.
Disadvantages include the main business having less control over outsources work so quality may fail.
Clear communication between the businesses to make sure exact specifications are met.
Finally, the business may have to share sensitive information with the outsource business that could get into the hands of competitors.
Explain the effects that political factors could have on an organisation. 4 Marks
A change in or introduction of a new law.
>For example if minimum wages changed then the organisation would have to comply therefore extra costs being incurred for higher wages.
>Alternatively, new environmental laws may be introduced (plastic bag charge) and businesses may gain a positive reputation for complying.
Income tax rates may change which will affect the profitability of an organisation.
>If this was reduced customers would have a higher disposable income resulting increased sales for businesses as customers are able to buy luxury items.
>For a Public Sector organisation a decrease in income tax may result in less money being given to the Government meaning a poorer service (NHS, Education) being delivered.
Other than political - describe external factors can have on an organisation. 5 Marks
Tip: PESTEC
Economic – factors such as inflation, unemployment, recession/boom periods, interest rates will affect organisations in a number of ways as customers will have more/less money to spend on products.
Social – changes in trends and fashions mean that organisations must continually carry out market research to see what products will sell or if new products are desired.
Technological – as technology changes organisations must keep up-to-date. This has included selling online/social media increasing sales however will involve a large financial cost.
Environmental – organisations now need to attempt to be socially responsible and environmentally friendly to satisfy consumer groups.
Competitive – organisations must continually monitor their competitors’ prices and alter theirs accordingly
Describe the main characteristics of an entrepreneurial structure. 2 Marks
Structure used primarily by small organisations when there is usually only one main decision maker, the owner.
Other staff may be consulted but the manager will make the final decision.
Distinguish between a centralised structure and a decentralised structure. 3 Marks
Tip: Use whereas
Centralised is when decision-making lies with top management in head office whereas decentralised is when decision-making is delegated to departments, which relieves senior management from routine day-to-day tasks.
Centralised ensures procedures are standardised which ensures consistency across the business whereas decentralised decisions are made by individual branches making it hard to have consistency across the entire business.
Centralised decisions will not reflect the needs of local markets whereas decentralised decisions means the business respond quickly to changing external factors which could lead to gaining a competitive edge.
