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#2 Business Studies 2021 > Unit 1: Business and the Environment > Flashcards

Unit 1: Business and the Environment Flashcards

1
Q

What is the definition of consumer goods?

A

The physical and tangible goods sold to the general public. Made up of durable goods (e.g. cars, washing machines) and non-durable goods (food, drink).

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2
Q

What is the definition of consumer services?

A

Non-tangible products sold to the general public (e.g. hotel accommodation, insurance services, transport services etc.)

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3
Q

What is the definition of capital goods?

A

The physical goods used by an industry to aid in the production of other goods and services (e.g. machines and other commercial services)

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4
Q

What is the definition of an entrepreneur?

A

Someone who takes the financial risk of starting and managing a new venture

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5
Q

What is the definition of a social enterprise?

A

A business with mainly social objectives that reinvests most of its profits into benefiting society rather than maximising returns to owners

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6
Q

What is the definition of the triple bottom line?

A

The three objectives of social enterprises: economic, social and environmental

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7
Q

What is a business?

A

A business is an organisation that exists to provide goods and services on a commercial basis to customers

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8
Q

What does a business need?

A
  • Land
  • Labour
  • Capital
  • Enterprise
  • Customers
  • Suppliers
  • Government
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9
Q

What is an entrepreneur?

A

An entrepreneur is someone who shows initiative by taking the financial risk of setting up, investing in and running a business

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10
Q

What are the roles of an entrepreneur?

A
  • Spot business opportunities
  • Take calculated risks in order to gain possible future returns
  • Act as a catalyst for the creation and growth of new business enterprises
  • Innovation
  • Commitment and self motivation
  • Multi-skilled
  • Leadership skills
  • Self confidence and resilience
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11
Q

How do you create value?

A

Value is created if a customer is willing to pay a price that is greater than the cost of materials used in making or providing a good or service. A business is able to create higher value if the product/service is customer focused

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12
Q

What are some major challenges faced by entrepreneurs?

A
  • Identifying successful business opportunities
  • Sourcing capital (finance)
  • Determining a location
  • Competition
  • Building a customer base
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13
Q

Why do new businesses fail?

A
  • Lack of record keeping
  • Lack of cash and working capital (poor budgeting)
  • Poor management skills
  • Changes in the business environment
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14
Q

What is the impact of an enterprise on a country’s economy?

A
  • Employment creation
  • Economic growth (outputs and exports increase GDP)
  • Firm’s survival and growth ensures only the best businesses survive
  • Innovation and technological change
  • Influence on future entrepreneurs (successful entrepreneurs can inspire others to do the same)
  • Increased social cohesion (more employment and higher standard of living)
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15
Q

What is a social enterprise?

A

A social enterprise is a business with primarily social objectives which seeks to benefit society and the environment while still maximising profits. Importantly, social enterprises are not charities.

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16
Q

What are the objectives of a social enterprise?

A

Social enterprises are focused on the triple bottom line:
Economic - make a profit to reinvest back into the business and provide some return for owners
Social - provide jobs or support for local and disadvantaged communities
Environmental - protect the environment and manage the business in an environmentally sustainable way

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17
Q

Why do entrepreneurs start a business?

A

The objectives when starting a business can be split into:
- financial
and
- non-financial objectives

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18
Q

What are some financial objectives when starting a business?

A

The main financial objects is survival as there is a high failure rate among start-ups.
Personal wealth is also another important objective as entrepreneurs wish to build a valuable business that can substantially increase their personal wealth

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19
Q

What are the fundamental things that a business needs to survive?

A
  • Sufficient sources of finance (e.g. cash, bank, share capital)
  • A viable business model (one which can make a profit)
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20
Q

What are some non-financial objectives when starting a business?

A

More control and greater independence over working life
A desire to pursue an interest or passion
Want a feeling of satisfaction with building a business
Fed up with working in a business hierarchy or bureaucratic organisation

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21
Q

What is the definition of the public sector?

A

This comprises organisations accountable to and controlled by the government

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22
Q

What is the definition of the private sector?

A

This comprises businesses owned and controlled by individuals or groups of individuals

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23
Q

What is the definition of a mixed economy?

A

Economic resources are owned and controlled by both private and public sectors.

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24
Q

What is the definition of a free-market economy?

A

Economic resources are owned largely by the private sector with very little state intervention

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25
Q

What is the definition of a command economy?

A

Economic resources are owned, planned and controlled by the state

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26
Q

What is the definition of a sole trader?

A

A business in which one person provides the permanent finance, has full control, and keeps all profits

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27
Q

What is the definition of a partnership?

A

A business formed by two or more people to carry on a business together, with shared capital investment and usually shared responsibilities

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28
Q

What is the definition of limited liability?

A

The only liability (potential loss) a shareholder has if the company fails is the amount invested in the company, not the total wealth of the shareholder

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29
Q

What is the definition of a private limited company?

A

A business that is owned by shareholders who are often members of the same family; this company cannot sell shares to the general public

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30
Q

What is the definition of a share?

A

A certificate confirming part ownership of a company and entitling the shareholder to dividends and certain shareholder rights

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31
Q

What is the definition of a shareholder?

A

A person or institution owning shares in a limited company

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32
Q

What is the definition of a public limited company?

A

A limited company, often a large business, with the legal right to sell shares to the general public - share prices are quoted on the national stock exchange

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33
Q

What are the two things that a limited company is required to set up?

A

Memorandum of Association

Articles of Association

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34
Q

What is the definition of a franchise?

A

A business that uses the name, logo and trading system of an existing successful business

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35
Q

What is the definition of a joint venture?

A

Two or more businesses agree to work closely together on a particular project and create a separate business division to do so

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36
Q

What is the definition of a holding company?

A

A business organisation that owns and controls a number of separate businesses, but does not unite them into one unified company

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37
Q

What is the definition of a public corporation?

A

A business enterprise owned and controlled by the state

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38
Q

What businesses operate in the public sector?

A

Important commodities such as medical care, public law and order, and education are part of the public sector as they are deemed too important and significant to be totally privately run

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39
Q

What businesses operate in the private sector?

A

Businesses that are owned and controlled by individuals or groups of individuals. The type and size of the business can vary

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40
Q

What is the primary sector?

A

This sector is concerned with the production of raw materials through primary industry e.g. the extraction of natural resources (gas, oil) and farming activities

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41
Q

What is the secondary sector?

A

This is often referred to as the manufacturing sector and is concerned with the production of finished goods and components

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42
Q

What is the tertiary sector?

A

This sector is involved with the provision of a service of some kind e.g. health, travel, building, security etc.

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43
Q

What are the advantages of being a sole trader?

A
  • Easy to set up (no legal formalities)
  • Owner has complete control
  • Owner keeps all the profits
  • Flexible working times (owner can choose their own hours)
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44
Q

What are the disadvantages of being a sole trader?

A
  • Unlimited liability (all of owner’s assets are potentially at risk)
  • Competition from bigger firms
  • No specialisation (experts)
  • Longer hours
  • Difficult to raise additional capital
  • Lack of continuity (when the owner dies, the business dies too)
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45
Q

What are the advantages of being in a partnership?

A
  • Partners may specialise in different areas of business management
  • Shared decision making
  • Additional capital
  • Business losses shared between partners
  • Greater privacy and fewer legal formalities than corporate organisations
46
Q

What are the disadvantages of being in a partnership?

A
  • Unlimited liability for all partners
  • Profits are shared
  • No continuity
  • All partners bound by the decisions (even if they disagree)
  • Capital is still fairly limited
47
Q

What are the advantages of being in a private limited company?

A
  • Shareholders have limited liability
  • Separate legal entity
  • Continuity in the event of a death of a shareholder
  • Original owners still often able to retain control
  • Able to raise capital from sales of shares to family, friends and employees
48
Q

What are the disadvantages of being in a private limited company?

A
  • Legal formalities involved in establishing the business
  • Capital cannot be raised by sales of shares to the general public
  • More transparency in financial affairs
49
Q

What are the advantages of being in a public limited company?

A
  • Limited liability
  • Separate legal entity
  • Continuity
  • Company can gain a more prestigious profile
  • Better access to capital - raising share capital from new and existing shareholders
  • Ease of buying and selling of shares (encourages investment)
  • Liquidity - shareholders are able to buy and sell their shares
50
Q

What are the disadvantages of being in a public limited company?

A
  • Legal formalities in formation and costs
  • Share price fluctuations due to the economy
  • Risk of takeover because the business is more known
  • Legal requirements concerning disclosure of information to shareholders
  • Directors’ objectives vs shareholders’ objectives
51
Q

What is a cooperative?

A

A cooperative is where a number of individuals or businesses work together to achieve a common purpose. They are normally formed so individuals and small businesses can benefit from being part of a larger group, meaning they have more power to buy or bargain.

52
Q

What are the advantages of being in a cooperative?

A
  • Buying in bulk
  • Working together to solve problems and make decisions
  • Good motivation for all members to work hard as they will benefit from shared profits
53
Q

What are the disadvantages of being in a cooperative?

A
  • Poor management skills (unless professional managers are employed)
  • Capital shortages as no sale of shares to the general public is allowed
  • Slow decision making if all members are to be consulted on important issues
  • May be difficult to raise finance as banks are not as willing to lend them money because their primary aim is not to make a profit
54
Q

What are the advantages of being in a franchise (to the franchisee)?

A
  • Fewer chances of new businesses failing as an established brand and product are being used
  • Advice and training offered by the franchisor
  • National advertising paid for by the franchisor
  • Supplies obtained from established and quality-checked suppliers
  • Franchisor agrees not to open another branch in the local area
55
Q

What are the disadvantages of being in a franchise (to the franchisee)?

A
  • Share of profits or revenue has to be paid to the franchisor each year
  • Initial franchise licence fee can be expensive
  • Local promotions may still have to be paid for by the franchisee
  • No choice of supplies or suppliers to be used
  • Strict rules over pricing and layout of the outlet reduce the owner’s control over their own business
56
Q

What are the benefits of a franchise to the franchisor?

A
  • A classic growth strategy for a proven business format
  • Enables much quicker geographical growth for a relatively low investment
  • Still have the open locations that are operated by the franchisor
  • Capital investment from franchisees is an important source of growth finance
57
Q

What are the advantages of being in a joint venture?

A
  • Costs and risks of a new business venture are shared
  • Different companies might have different strengths and experiences
  • They might have their major markets in different countries and they could exploit these with a new product more effectively together than on their own
58
Q

What are the disadvantages of being in a joint venture?

A
  • Styles of management and culture might be so different that the two teams do not work well together
  • Errors and mistakes might lead to one blaming the other
  • The business failure of one of the partners would put the whole project at risk
59
Q

What are the advantages of being in a public corporation?

A
  • Managed with social objectives rather than solely with profit objectives
  • Loss making services might still be kept operating if the social benefit is great enough
  • Finance raised mainly from the government
60
Q

What are the disadvantages of being in a public corporation?

A
  • Tendency towards inefficiency due to a lack of strict profit targets
  • Subsidies from the government can also encourage inefficiencies
  • Government may interfere in business decisions for political reasons
61
Q

What are the features of an unincorporated business?

A
  • The owner is the business (no legal difference)
  • Owner has unlimited liability for the business
  • Most unincorporated businesses operate as sole traders, with a small number as partnerships
62
Q

What are the features of an incorporated business?

A
  • There is a legal difference between the company and the owners (separate legal entity)
  • Shareholders have limited liability
  • Most incorporated businesses operate as private limited companies with a smaller number as public limited companies
63
Q

What can the size of a business be measured by?

A
  • The number of employees
  • Revenue (total value of sales made by a business in a given period)
  • Capital Employed (total assets - CL OR NCL + shareholders’ funds/equity)
  • Market Capitalisation (total value of a company’s issued shares)
  • Market Share (sales of a business as a proportion of total market share)
64
Q

How effective is number of employees for measuring business size?

A

This method is problematic as it does not take into account automated manufacturing firms which produce high levels of output with very little employees. It is also difficult to take into account the different hours worked by the employees, as well as their specific roles and output

65
Q

How effective is revenue for measuring the size of a business?

A

This method is often used to compare similar companies in the same industry, but it is not useful for comparison with businesses in different industries or which sell different products/provide different services

66
Q

How effective is capital employed for measuring the size of a business?

A

This measures the total wealth of a business including assets, liabilities and investor’s capital. However a fair comparison can only be made with businesses in the same industry

67
Q

How effective is market capitalisation for measuring the size of a business?

A

This is calculated by: current share price x total number of shares issued.
This method can only be applied to public limited companies on the stock exchange. It is also not a stable method of measurement as there are share price fluctuations and a drop in the share price could make the firm seem smaller than it is

68
Q

How effective is market share for measuring the size of a business?

A

This is calculated by: total sales of the business ÷ total sales of the industry x 100.
It is not a very accurate measurement as a large market share does not necessarily mean that it is a large business. The market is constantly changing.

69
Q

How do small and micro business benefit the economy?

A
  • They create jobs and reduce unemployment. More jobs are created by small firms collectively than by big firms (in NZ small businesses make up 89% of enterprises and contribute 29% of all employment)
  • They provide competition for established businesses to ensure they remain competitive
  • They are often run by innovative entrepreneurs who have new creative ideas in order to survive in the market. This creates more variety for consumers and some ideas can have positive impacts on the community
  • Small firms supply specialist goods/services to important industries in the country
70
Q

What are the advantages of a small business?

A
  • They are relatively easy to set up and are flexible as decisions can be made quickly
  • They can be managed and controlled by the owner
  • They are able to adapt quickly to meet changing consumer needs
  • They are often run by very motivated individuals who have set up their own business and so want it to succeed to personally gain rewards
  • They are often very creative as it is easy for those involved to communicate with each other and share ideas
  • They offer more personal service to customers
  • It is easier to know each worker and staff prefer to work for a smaller, more ‘human’ business
71
Q

What are the disadvantages of a small business?

A
  • They lack power in the market (e.g. with suppliers and customers) and so can find it difficult to survive
  • They may lack much experience compared to more established firms
  • They may find it difficult to raise finance because of the high risk involved as so many small businesses fail
72
Q

What are the advantages of a family business?

A
  • There is more stability as family members generally remain fixed in their positions and there is a longevity in leadership
  • Family firms often have a greater sense of commitment and accountability as the needs of the family, not just the business, are at stake (highly motivated)
  • There is often a more personal service for customers who come to know the family personally
  • There is often flexibility as family members take on multiple tasks and roles
  • Family firms have a more long-term outlook, thus fostering a culture of clear strategy and decision-making
  • In times of financial difficulty family members are often willing to personally contribute in order to keep the business afloat
73
Q

What are the disadvantages of a family business?

A
  • There may be a lack of interest in the business for some family members so they may be unmotivated or younger generations may not want to continue running the business
  • There may be conflict among the family members which will have an impact on the business
  • Nepotism in the family may mean that unqualified or inexperienced family members are promoted to management roles and this lack of competency could have an impact on the business’ success
  • In the event of a family death, it can be difficult for a business to continue on
74
Q

What are reasons why owners would want their business to grow?

A
  • Increased profits
  • Increased market share (gains a bigger market profile and more bargaining power with suppliers for example)
  • Increased economies of scale
  • Increased power and status of owners and directors (more connections)
  • Reduced risk of being a takeover target
75
Q

What is internal growth?

A

Internal growth is the expansion of a business by means of opening new branches, shops or factories i.e. it is the means by which a business can grow using its own resources

76
Q

How can a business grow internally?

A
  • By trying to grow sales of its existing products in its existing markets
  • By developing new products for its customers
  • By finding new markets where it can sell its existing products
  • By opening new branches, shops or factories
77
Q

Why might a business grow internally?

A
  • It is relatively inexpensive compared to external growth
  • Businesses maintain control whereas external methods lead to loss of control and ownership
  • A business can get more power over suppliers and customers, which would help it to make more profits
  • A business can reach more customers and there is a possibility of more profit through more sales
  • The owners can eventually own something that is worth more i.e. increase their capital
  • The owners can have a sense of achievement because they can look back and be proud of having grown the business
78
Q

What is the definition of a mission statement?

A

A statement of the business’ core aims, phrased in a way to motivate employees and to stimulate interest by outside groups

79
Q

What is the definition of Corporate Social Responsibility (CSR)?

A

This is the concept that accepts that businesses should consider the interests of society in their activities and decisions, beyond the legal obligations that they have i.e. the triple bottom line

80
Q

What is the definition of management by objectives?

A

This is a method of coordinating and motivating all staff in an organisation by dividing its overall aim into specific targets for each department, manager and employee

81
Q

What is the definition of the ethical code (code of conduct)?

A

This is a document detailing a company’s rules and guidelines on staff behaviour that must be followed

82
Q

What is the purpose of business objectives?

A

Objectives give the business a clearly defined target. Plans can then be made to achieve these targets. This can motivate the employees. It also enables the business to measure the progress towards its stated aims

83
Q

What criteria do effective business objectives meet?

A 
SMART:
S - Specific
M - Measurable
A - Achievable
R - Realistic
T - Time specific
84
Q

What is the hierarchy of objectives?

A 
Aim
Mission Statement
Corporate Objectives
Functional Objectives 
Team/Department Targets
Individual Targets
85
Q

What are the benefits of setting corporate aims?

A
  • Act as a starting point for more objectives down the chain e.g. divisional objectives, departmental objectives, individual targets
  • Help to develop a sense of purpose and direction for the whole organisation if they are clearly communicated to the workforce
  • Help to set long term goals so that they can be evaluated and monitored constantly to make sure the business is on track
86
Q

Why might a business change its objectives over time?

A
  • A business may achieve an objective and will then need to move onto another one (e.g. survival in the first year may lead to an objective of increasing profit in the second year).
  • The competitive environment might change, with the launch of new products from competitors.
  • Technology might change product designs, so sales and production targets might need to change.
87
Q

What are some common corporate objectives?

A
  • Profit maximisation
  • Profit satisficing
  • Growth
  • Increasing market share
  • Survival
  • Corporate Social Responsibility (CSR)
88
Q

What are corporate objectives?

A

Corporate objectives are those that relate to the business as a whole. They are usually set by the top management of the business and they provide the focus for setting more detailed objectives for the main functional activities of the business

89
Q

What is the benefit of communicating objectives to staff?

A
  • Employees and managers have a greater understanding of the individual and company-wide goals
  • Employees can see the overall plan and understand where they fit in
  • It creates shared employee responsibility by interlinking their goals with others in the company
  • Managers are able to monitor employees’ progress to ensure deadlines are being met and to provide help if necessary
90
Q

What are the short-term impacts of making ethically-focused decisions?

A
  • Using ethical and Fairtrade suppliers can be more costly
  • Accepting that it is wrong to fix prices with competitors might lead to lower prices and profits
  • Paying fair wages will increase costs and reduce competitiveness against firms that exploit their workers
91
Q

What are the long-term impacts of making ethically-focused decisions?

A
  • Potentially expensive court cases can be avoided
  • Bad publicity can be avoided and good publicity can be gained leading to increased sales from ethical customers and increased customer retention
  • Ethical employees are other stakeholders are more attracted to the business
92
Q

What are the common stakeholders of a business?

A
  • Shareholders
  • Banks & other lenders
  • Directors and managers
  • Employees
  • Suppliers
  • Customers
  • Community
  • Government
93
Q

What is the definition of a stakeholder?

A

People or groups of people who can be affected by - and therefore have an interest in - any action by an organisation

94
Q

What is the definition of the stakeholder concept?

A

The stakeholder concept is the view that businesses and their managers have responsibilities to a wide range of groups, not just the owners and shareholders

95
Q

What are the disadvantages of adhering to CSR?

A
  • CSR can distract from the business being able to use resources as efficiently as possible to make profits for the owners
  • In the short term it can reduce profits
96
Q

What are the main interests of shareholders?

A

Profit growth, share price growth, dividends (return on investment)

97
Q

What are the main interests of banks and lenders?

A

The ability of the business to repay loans, and interest

98
Q

What are the main interests of directors and managers?

A

Salaries, job satisfaction, status

99
Q

What are the main interests of employees?

A

Salaries and wages, job security, job satisfaction and motivation

100
Q

What are the main interests of suppliers?

A

Long term contracts, prompt payment, growth of purchasing

101
Q

What are the main interests of customers?

A

Reliable quality, value for money, product availability, customer service

102
Q

What are the main interests of the community?

A

Environment, local jobs, local impact

103
Q

What are the main interests of the government?

A

Legal obligations, payment of tax, employment

104
Q

What are the roles, rights and responsibilities of customers?

A

Roles:
- purchase goods and services
- provide revenue from sales, which allows the business to function and expand
Rights:
- to receive goods and service that meet local laws regarding health and safety, design, performance etc.
- to be offered replacements, repairs, compensation in the event of failure of the product or service
Responsibilities:
- to be honest (pay for goods bought or services received when requested)
- not to steal
- not to make false claims about poor service, underperforming goods or failed items

105
Q

What are the roles, rights and responsibilities of suppliers?

A

Roles:
- supply goods and services to allow the business to offer its products to its own customers
Rights:
- to be paid on time as laid down either by law or by the service agreement between the business and supplier
- to be treated fairly by the purchasing business e.g. not having lower prices forced on them by a much larger and more powerful business
Responsibilities:
- to supply goods and services ordered by the business in the time and condition as laid down by the purchase contract or supplier’s service agreement

106
Q

What are the roles, rights and responsibilities of employees?

A

Roles:
- provide manual and other labour services to the business, in accordance with the employment contract, to allow goods and services to be provided to customers
- to be treated within the minimum limits as established by national law e.g. minimum wage rate
- to be treated and paid in the ways described in the employment contract
- in most countries, to be allowed to join a trade union if desired
Responsibilities:
- to be honest
- to meet the conditions and requirements of the employment contract
- to cooperate with management in all reasonable requests
- to observe the ethical code of conduct

107
Q

What are the roles, rights and responsibilities of the local community?

A

Roles:
- provide local services and infrastructure to the business to allow it to operate, produce and sell within legal limits
Rights:
- to be consulted about major changes that affect it e.g. expansion plans or changing methods of production
- not to have the community’s lives badly affected by the business’ activities
Responsibilities:
- to cooperate with the business, where reasonable to do so, on expansion and other plans
- to meet reasonable requests from the business for local services such as public transport (to allow staff to get to work) and waste disposal

108
Q

What are the roles, rights and responsibilities of the government?

A

Role:
- pass laws that restrain many aspects of business activity
- provide law and order to allow legal business activity to take place
- achieve economic stability to encourage business activity
Rights:
- businesses have the duty to government to meet all legal constraints, such as producing only legal goods, and to pay taxes on time
Responsibilities:
- to treat businesses equally under law
- to prevent unfair competition that could damage business survival chances
- to establish good trading links with other countries to allow international trade

109
Q

What are the roles, rights and responsibilities of lenders?

A

Roles:
- provide finance to the business in different forms
Rights:
- to be repaid on the agreed date
- to be paid finance charges e.g. interest on loan
Responsibilities:
- provide agreed amount of finance on agreed date for the agreed time period

110
Q

How might conflict arise between stakeholders?

A

Conflicts often arise because shareholders want short-term profits and the other stakeholders’ desires tend to cost money and reduce profits. The owners have to balance their own wishes against those of the other stakeholders or risk losing their ability to generate future profits

#2 Business Studies 2021 (5 decks)

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