Unit 1: Business and the Environment Flashcards

Question

What is the definition of a command economy?

Answer 1

Economic resources are owned, planned and controlled by the state

Answer 2

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

Answer 3

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

Answer 4

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

Answer 5

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

Answer 6

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

Answer 7

A person or institution owning shares in a limited company

Answer 8

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

Answer 9

Memorandum of Association | Articles of Association

Answer 10

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

Answer 11

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

Answer 12

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

Answer 13

A business enterprise owned and controlled by the state

Answer 14

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

Answer 15

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

Answer 16

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

Answer 17

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

Answer 18

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

Answer 19

- 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)

Answer 20

- 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)

Answer 21

- 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

Answer 22

- 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

Answer 23

- 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

Answer 24

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

Answer 25

- 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

Answer 26

- 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

Answer 27

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.

Answer 28

- 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

Answer 29

- 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

Answer 30

- 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

Answer 31

- 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

Answer 32

- 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

Answer 33

- 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

Answer 34

- 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

Answer 35

- 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

Answer 36

- 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

Answer 37

- 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

Answer 38

- 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

Answer 39

- 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)

Answer 40

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

Answer 41

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

Answer 42

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

Answer 43

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

Answer 44

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.

Answer 45

- 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

Answer 46

- 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

Answer 47

- 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

Answer 48

- 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

Answer 49

- 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

Answer 50

- 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

Answer 51

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

Answer 52

- 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

Answer 53

- 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

Answer 54

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

Answer 55

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

Answer 56

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

Answer 57

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

Answer 58

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

Answer 59

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

Answer 60

``` Aim Mission Statement Corporate Objectives Functional Objectives Team/Department Targets Individual Targets ```

Answer 61

- 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

Answer 62

- 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.

Answer 63

- Profit maximisation - Profit satisficing - Growth - Increasing market share - Survival - Corporate Social Responsibility (CSR)

Answer 64

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

Answer 65

- 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

Answer 66

- 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

Answer 67

- 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

Answer 68

- Shareholders - Banks & other lenders - Directors and managers - Employees - Suppliers - Customers - Community - Government

Answer 69

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

Answer 70

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

Answer 71

- 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

Answer 72

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

Answer 73

The ability of the business to repay loans, and interest

Answer 74

Salaries, job satisfaction, status

Answer 75

Salaries and wages, job security, job satisfaction and motivation

Answer 76

Long term contracts, prompt payment, growth of purchasing

Answer 77

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

Answer 78

Environment, local jobs, local impact

Answer 79

Legal obligations, payment of tax, employment

Answer 80

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

Answer 81

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

Answer 82

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

Answer 83

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

Answer 84

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

Answer 85

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

Answer 86

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