Unit 1 : Intro to Business Management Flashcards
Difference between private and public sector companies
Private - owned and operated by individuals or corporations
Public - owned ( partially or wholly) by the national government
What is a sole trader?
A sole trader is a self-employed person who runs a unlimited liability business entity own their own, using their own savings or borrowed capital
Adv and disadvantages of sole trader
Advantages
- Being your own boss
- Profit taking
- Privacy , dont have to reveal any financial information
- Decision making power - sole
Disadvantages
- Unlimited liability - they are responsible for all losses of the business
- Increased workload and stress - all work is done by them
- Increased risk
- Reduced sources of finance
What are partnerships?
For profit, unlimited liability business entities owned and operated by two or more (max 20) people
Advantages and Disadv of partnerships
Advantages
- Division of labour
- Financial Strength
- Cost effectiveness ~ specialisation
- Financial privacy
Disadvantages
- Slower decision making
- Unlimited liability
- Lack of continuity
- Lack of harmony
What are privately held companies
Privately held companies are limited liability companies owned and operated by shareholders, people who invest capital in the company, but cannot sell shares on a public stock exchange
Advantages and disadv of privately held companies
Advantages
- Limited liability
- Increase capital (investments)
- Continuity
- Economies of scale ( larger size)
- Corporation tax benefits
Disadvantages
- Communication problems
- Compliance costs of being a company
- Disclosure of information ( no privacy)
- Bureaucracy, complex set up process
What is a Memorandum of Association?
A relatively brief document outlining the basicn details of the company - trading name, main purpose, business address
What are the Articles of Association?
More intensive documentation about the internal rules, regulations and policies of a company
What is a publicy held company?
A publicly held company is a limited liability company owned by shareholders that allows the sale and buying of shares in a public stock exchange
What is flotation?
Flotation referes to when a privately held company becomes a publicly held company by selling its shares publicly for the first time. This is called a IPO ( Initial Public Offering)
What is a social enterprise?
Revenue generating businesses with social objectives at the core of their business operations
Advantages of social enterprises
- They use financial surplus to meet social objectives beyond personal rewards
- They create employement oppurtunities
They are run in a transparents and honest way
Difference between public and private sector social enterprises>
Private
- Have to make profit
- Reinvest in social objectives
- Work like a normal for profit except the sue of the profit
- Ethical business pratices
Public
- Owned partially or wholly by the government
- Raises revenue for government activites but also provides a much needed service
What are cooperatives?
For profit social enterprises owned and run by their members - costumers or employees
Types of cooperatives?
- Consumer cooperatives ; owned by conumers who by the goods and services
- Worker cooperatives ; set up, owned and controlled by workers
- Producer cooperatives are cooperatives that join together ot support each others activites
Adv and Disadv of cooperatives
Advantages
- Incentives to work
Decision making power
- social benefits
- public support
Disadvantages
- Limited sources of finance
- Slower decision making
- Limited promotional activies ( flat structure)
What are NGO’s?
not for profit social enterprises that operate for the benefit of others rather than making profit
What is a vision statement ?
Statement that outlines an organisations aspirations in the distant future. What is wants for the company’s future
What is a mission statement?
A mission statement is a simple declaraction of the underlying purpose of an organisations existence and its core values
Why are organisational objectives important?
To measure and control - to track the progress of the operations, determine the parameters for business activity
To motivate - to provide clear understanding of the business’ goals to provide the employees with motivation to work towards something. help reach common goal
To direct - Provide an agreed upon clear goal to provide direction for what the managers and employees need to work towards
Common business objectives?
Growth - measured by increase in sales revenue or by increase in market share. Essential for survival in ever competitive world
Profit - main objective for a for-profit is to make profit. making profit is an incentive for entrenpreneurs
Protecting shareholder values - dividends
protecting value by maximising return in a sustainable way for shareholders. BOD ultimately responsible for protecting value
Adv and Disadv of ethical objectives
Advantages
- Improved corporate image
- Increased customer loyalty
- Cost cutting ( no litigation costs)
Disadvantages
- Compliance costs
- Stakeholder conflict
- Subjective nature of business ethics
What are Strategies ?
Medium to long term plans of action to achieve the strategic objectives of an organisation
What are tactical objectives?
Short-term plans of action and goals that affect a section of the organisation.
What are some tactical objectives?
Survival
Revenue maximisation
What are some strategic objectives?
Market Standing
Market Share
Image and reputation
What is Corporate Social Responsibility
conscientious consideration of ethical and environmental practices related to business activities
What is a stakeholder?
A stakeholder is any individual, group, or organisation with a direct interest or involvement in the operations and performance of a business
What is economies of scale?
Economies of scale refers to when a firm has a lower average cost of prodution as operation at a larger scale helps improve efficiency
What can cause internal economies of scale?
Technical - use of more efficient machinery and sophisticated capital
Financial- Large firms can borrow large sums at lower interest rates reducing long term liabilities
Managerial - specialisation leads to greater productivity and efficiency
Marketing economies - bulk sales
Purchasing economies - buy in bulk ( raw material)
Risk bearing - conglomerates can spread financial risk across their diverse portfolio
What are external causes of economies of scale?
Technological progress - increases productivity in the industry
Transporttion - helps to ensure prompt deliveries and transport employees
Abundance of skilled labour - lesser training costs without comprising productivity
Regional Specialisation - when a certain area is famous for a certin product, service or material. Specialists can help increase productivity and easy access to good quality materials
What is diseconomies of scale?
When the average cost of production begins to rise due to the business being outsized and inefficient
What causes internal dos
- Lack of coordination and control causes communication problems are reduces productivity
- Poor working relationships in oversized businesses, affects motivations makes different levels become disconnected from each other
- The amount of bureaucracy and administration that can be involved in running a business can be very time consuming and inefficient
- Complacenly in a large firm
What causes external DOS
Clustering of businesses in one area can increase competition for resources and increase rent
Retaining employees that are being poached may require more remuneration and better benefits - expensive
Traffic congestion can be inefficient and reduce productivity
What is internal growth?
Internal growth refers to when a firm grows organically, using its own capabilities and resources to increase its scale of opportunities.
Methods of internal growth?
- Price - reduce price to become more competitive or increase price to reposition product.
- Promotion - inform, remind and persuade customers of the benefits of a product
- Products - create improved, better products
- Placement - sell products through a better distribution system
- Increase capital expenditure - reinevent capital into the internal growth of the company
Advantages and Disadv of internal growth
Adv
- Better control and coordination ~ do not have to rely on external sources its better to grow internally
- Inexpensive
- Maintains corporate culture
- Less risky
Disadv,
Diseconomies of scale - hierarchal strucutre and inefficient communication
Restrucuting - time effort and money
Dilution of power and control
Slower growth ( than external)
What is external growth?
external growth occurs through dealings with outside organisations rather than increases in the business’s operations.
Adv and Disadv of external growth
Adv
- Specialisation and synergy
- More capital expenditure coming from combined entities
- Economies of scale potential
- Quicker than internal
- Reduced competition
Disadv
Diseconmies of scale due to communication problems
Conflict can cause decreased productivity
clashes between organisational culture
Dilution of ownership
More expensive
Reasons for expansion
Economies of scale
Increase profit
Increase brand awareness and vrand value
Customer loyalty
Risk diversification
Reasons to stay small
To maintain control and ownership
To maintain good communication and quick decision making
To provide personalised service
To control costs of running a large business
To take advantage of local monopolys and available government aid
What is synergy ?
Created when the business becomes more than the sum of its part. when the sharing of speicalised knowledge, skills and technology helps improve productivity and efficiency
What is a merger?
A merger refers to when 2 businesses mutually agree to combine to form a 3rd new legal entity
What is an acquisition?
An acquisition refers to when an entity buys a controlling stake in another company with the permission of board of directors
Types of M&A’s >
Horizontal integration - when companies at the same level of production merge or are acquired. Lead to an increase market share
Vertical integration - M&A with a firm at another level of production.
- vertical forward - next level of production
- vertical backward - last level of production
Lateral integration - similar operations but do not directly compete with each other. This could help grow a company portfolio through diversification
Adv and Disadv of M&A’s
Adv
- Greater market share
- Economies of scale
- Synergy
- Diversification and spreading of risks
- Gain entry into new markets - market development
Disadv
- Clashes or conflict between combined idneitity
- Diseconomies of scale
- Redundancies
- Loss of control
What are takeovers?
Takeovers refere to when a business buys a controlling stake in another firm without the permission of the BOD. aka hostile takeover
What makes companies targets for takeover?
Potential but no funds
Small rival with potential
Widely recognised brand facing financial trouble
Vulnerable due to some internal or external situation
What are joint ventures?
A joint venture ocfurs when two or more businesses split the costs, risks and control of new business project and create a new legal business entity, without loosing their indivdiual corporate identities
Adv of JV
- Synergy - less conflict because you can still work on your own business but use specialisation, new skills and othe rknowlege to achieve larger profits
- Spreading of costs and risks - diversification as well as sharing the burden of the new project
- Entry ot foreing markets - becomes easier when you do a JV with a local brand. Allows you to establish yourself and create a brand image
Competitive edge - JV companies wont compete with each other
HIGH SUCCESS RATE AND ACCEPTANCE RATE
What is a strategic alliance ?
An alliance beteen two or more businesses cooperating in a business venture that is mutually beneficial. No new business entity is formed
Stages of a strategic alliance>
Feasibility study
Partnership assessment
Contract negotiations
Implementation
What is a franchising ?
Franchising refers to a form of external growth where an individual buys a license to operate using a companys brand, product, logo and trademarks in return for a fee
Adv and Disadv for franchisee ( person who buys)
Adv
- They get the royalty payments if they have high sales
- Less risky as a business due to an established business brand
- Free advertising
Disadv
- Do not get to control their own products or marketing or branding - lesser creative freedom
- buying can be very expensive
- have to pay royalty fee
Adv and Disadv for franchisor ( franchise company)
Adv
- More motivated workforce cause they have some ownership
- Profit in the form of royalty
- Helps expansion and increase outreach
- Dont have to worry about business operations
Disadv
- risky to have a non internal person who can affect the brand image and product quality of your firm
- not as quick in growth
- cant control quality of products as well
What is a MNC?
A mnc is an organisation that operates in two or more countries usually with its head office based in its home countries.
Reasons to strive to become an MNC?
- Increase customer base and increase sales
- Cheaper production costs - skilled labour, cheaper raw material, different taxation
- Economies of scale
- Brand development and brand value
- Avoid harsh trade tarifs and regualtions
- Diversification
Positive Impact of MNC’s on host countries
- Increase employment rate
- Higher national income
- Knowledge and technology transfer
- Greater compeition - fuels economy creates incentives to work harder
Negative Impact of MNC’s on host countries
Job losses by threatening domestic businesses
Profits are sent back
Competitive pressures reducing domestic firms prices
