Unit 1 (Introduction To Business) Flashcards
What is a business?
Business is an organisation by a individual or group of people in process of producing goods and services
What are inputs?
Capital
Enterprise
Land
Labour
Functions of a business?
Operations
Finance
HR
Marketing
What is a business sector?
Business classified by area of production the business is in
Primary Sector?
Extraction or harvesting of raw materials
Secondary Sector?
Manufacturing or construction of products or services
Tertiary sector?
Providing services or products to the populationuar
Quartery Sector?
IT based activities to share knowledge
Chain of production?
Links all production sectors through a chain
Extraction -> Manufacturing -> Services -> Consumers
What is an entrepreneur
Entrepreneur is an individual who plans, organises and manages a business. Characteristics needed:
- Risk Taker
- Vision
- Profit
- Responsibility for Employees
- Failure may result in personal costs
Challenges for a business?
Production Problems
Poor Location
People management
Finance
Legalities
Marketing Problems
Unstable Customer Base
Cash Flow Problems
Opportunities to start a business?
Growth: Capital Growth (Profit)
Earnings: More Reward, Higher Salary
Inheritance: Pass down to future generations
Challenge: Wants to challenge themselves
Autonomy: Work for themselves, makes own rules and working hours
Security: Successful Job, more security, continued income and salary
Hobbies: Working as a hobby
Private vs Public Sector
Business categorized into public or private sectors
Private Sector?
Controlled by individuals and businesses aim to make a profit
Public sector?
Owned by government, aimed to provide essential goods and services to the public
What are social enterprises?
Businesses aimed to achieve social input alongside gaining a financial return
What is a for profit social enterprise and its aims?
Revenue generating enterprises with social objective at the core of their objectives.
Aims:
- More surplus of revenue, greater than costs to generate profit
- Uses surplus to add social benefits to society
What is a private sector for profit social enterprise and its aims?
Enterprises operating similar to traditional business, aims to make profit instead of donations to achieve social aims.
Aims:
- Produce goods and services to compete with similar businesses whilst also achieving their social goals.
What is a public sector for profit social enterprise?
Enterprises owned to create in a commercial way
Aims:
- Raise government revenue to provide essential services to society that may be insufficient if left solely in private sector
What is cooperatives and its aims?
Normal businesses that are owned by members, shareholders/employees are owners of the business
Aims:
- Creates value for members by operating in social way
- Employees have a vote to contribute to decision making
- Profit earned and shared between their members
Adv and Cons of Cooperatives?
ADV:
- Incentives to work
- Decision making power
- Social benefits
- Public support
Cons:
- Disincentives effects
- Limited sources of finance, less profit driven
- Slower decision making
- Limited promotional opportunities
What is an NGO
Operates in private sector to provide goods and services usually expressed in public sector but not operated by government. But NGO’s can secure grants from the government to support operations
What are hierarchy of objectives?
Objectives that provide business direction for the future:
Short Term ————————-> Long Term
Tactics -> Strategies -> Mission -> Vision
Very Specific ———————–> Broad Ideas
What are vision statements?
A vision statement articulates the long-term aspirations and future goals of the business
What are mission statements?
A mission statement outlines the fundamental purpose and reason for an organisation’s existence. It describes what the company does, who it serves, and how it provides value to its customers or stakeholders
What are common business objecitveS?
- Growth
- Profit maximisation
- Protecting shareholder value
- Ethical issues
What are importance of business objectives?
Objectives are goal or targets to achieve by business. Usually more specific and set in line with mission statements. Objectives important for:
- Measuring contorl
- To motivate
- To direct/lead
What is growth in business objectives?
Measured by increase in sales revenue by market share. Essential for survival to adapt to changing and competitive business conditions. Failure to grow results in declining competitiveness and threatens firms sustainability.
What is profit maximisation in business objectives?
Traditionally main objective for most private sector businesses. Provides incentives for entrepreneurs and shareholders when taking risk in running and managing a business.
What is protecting shareholder value in business objectives?
Earning profitable return for shareholders in sustainable way. Challenge for directors of firm to balance short term profits with investments in long term value of company. (Choosing amount between retained profits or dividends)
What is survival in business objectives?
To survive and make a profit for new businesses or to cut costs for struggling existing business to stay a float / survive.
What is ethical objectives in business objectives?
Morals are concerned to be right or wrong decisions from point of view of society. Main principles to guide decision making and strategy. Thus business ethics are actions of people and organisations and whether they are morally correct.
What are advantages of ethical practices?
- Improved corporate image (brand image)
- Improved customer loyalty
- Improve staff motivation
What are disadvantages of ethical practices?
- Compliance costs
- Lower profits
- Shareholders profits
- Subjective nature of business ethics (knowing what is actually wrong or right)
What are survival methods
- Surge pricing
- Destroyer pricing
What are strategies?
Strategies are plans of actions to achieve for the organisation. They are usually medium to long term and expressed significantly. Fulfilment of strategies will help achieve targets
Examples of strategies?
- Market standing: Extent of business’s prescence in industry
- Brand image and reputation: Consumer belief and reputation on the firm
- Market share: Measured by expressing sales revenue as a perception of the industry’s total sales
What are tactics?
Methods used to enact strategies from business. Short term and frequently generated. Fulfilment of tactics allow business to perform its strategies.
What is corporate social responsibility? (CSR)
- Conscience consideration of ethical and environmental practice for business’s activities
- Practice and policies will need regular review to adapt to evolving attitudes and expectations of different market/countries
- This can provide firms with competitive advantage as it helps increase brand image and longer term sustainability of society.
Examples of CSR?
- Company that provide accurate product labelling
- Positively impacts the environment
- Fair employment practices and conditions
- Contribute to communities (volunteer or charitable work)
What are stakeholders?
stakeholders are a individual, group or organisation with direct interest which are affected by business operations and performance. They are classified as external or internal stakeholders.
What are internal stakeholders?
Stakeholders are members within the business. They have direct interest and affected by business performance and activities.
Main interests:
- Employees
- Managers and directors
- Shareholders
What are employees?
Individuals that work for the business
Strives for:
- Increase in pay / financial benefit
- Working conditions
- Job security
- Job progression
What are managers / directors?
Managers are people who run operations of a business. Directors are executives that direct operations whom are voted by shareholders.
Main interested in:
- Profit maximisation
- Job security / Financial benefits
- Long term financial stability of business
What are shareholders?
Powerful stakeholder groups due to voting rights
Main interests:
- Maximise dividends
- Achieve capital gain by increase in valuation of their stocks
What are external stakeholders?
Those that are not in form of business but have direct interest and affected by activities and performance of business.
What are examples of key external stakeholders?
- Customer
- Suppliers
- Pressure groups
- Competitors
- Government
What are customer?
Instrumental to business survival
Interests depends on goods / services of business, Generally interested in:
- Quality of goods / services
- Value for money
What are suppliers?
Provides business with raw materials needed for production of goods / services
Main interests:
- Clients who pay on time
- Regular contracts with clients
- Good working relationship with clients
What are financiers?
Financial institutions and investors who provide source of finance. Ear money by charging interests when a business borrows money.
Interests are:
- Ability of firm to repay debts from generating sufficient profits
- Establishing long term relationships with firms to achieve sufficient earnings by financiers.
What are economies of scale?
Average production cost decreases as business increases size of operations
What are diseconomies of scale?
Business is too large causing production inefficiency resulting in increase in average cost of production
What are the internal economies of scale?
T: Technical
M: Management
S: Specialisation
F: Financial
M: Marketing
P: Purchasing
RB: Risk bearing
What are technical economies of scales?
Large firms can use machinery at higher capacity due to increase output thus spreading cost of machinery
What are management economies of scales?
Employs better / specialist managers and efficient at tasks thus lowering average costs
What are financial economies of scale?
Large firms receive lower interest rate thus decreasing cost per unit
What are marketing economies of scale?
Spread cost of advertising by large number of sales, can also reuse previous marketing material
What are purchasing economies of scale?
When firm buys raw materials in bulk thus reducing production cost as they receive bulk discount per unit bought
What are risk bearing economies of scale?
Diversification of business as they spread risk of failure by increasing number of products in different market
What are specialisation economies of scale?
Ability of business to enact division of labour within employees to increase efficiency.
What are the internal diseconomies of scale?
M- Management
C- Communication
G- Geographical
C- Cultural
What are management diseconomies of scale?
Managers work more in self interest than for interest of firmt
What are communication diseconomies of scale?
When firm’s organisation structure becomes more complex with multiple layers of management resulting in communication difficulties thus slowing decision making
What are geographical diseconomies of scale?
Occurs when firm has spread bases of operations across multiple locations leading to communication challenges and increase in average costs
What are cultural diseconomies of scale?
When firm expands into foreign market where workers have different working styles, leads to producing disruption decreasing efficiency and increasing average cost.
What are external economies of scales?
Ways a business can decrease their average cost per unit through external factors in the environment
They are:
- More skilled labour
- Specialised training
- Better infrastructure
- More suppliers
- Specialists facilities
- Developed economy / technology
What are external diseconomies of scales?
Ways a business could increase their average cost per unit through external factors in the environment
They are:
- Competition by other firms
- Shortage of resources
- Pollution
What are ways to measure a business?
Market Share
Total sales revenue
SIze of workforce
Capital employed
What is internal growth?
Occurs when business grows on own with own resources increasing scale of operations
What is external growth?
Dealing with other organisations in form of mergers, alliances or acquisitions of other businesses
What are methods of internal growth?
- Increase prices
- Credit customers
- Effective promotions
- Capital expenditure
- Product innovation
- Training of staff
What are reasons to grow?
- Desire to run large business
- Higher market share / profitability
- Stronger market power over customers
- Desire to reduce costs
- Opportunity for diversification
- Easier access to sources of finance
What are reasons to stay small?
- Offer personalised service / product
- Unable to access finance
- Provide product in niche market
- Able to respond quickly to change in preference
Internal growth advantages?
- Better control
- Inexpensive
- Corporate Culture
- Less risky
Internal growth disadvantages?
- DIseconomies of scale
- Restructuring ownership
- Slower method of grow
What is a merger?
Agreement between 2 or more businesses to join together as single business
What is a acquisition?
When one business takes total control over another business by gaining majority of full stake. Done through paid agreement with directors from target company?
What is a hostile takeover?
Applies against will of company taken over, can only be done to PLC as they lose control if over 50% of shares bought out by another company
What is a vertical merger?
Merger between 2 businesses in same industry but different stages of production
Adv of vertical merger?
- Reduces cost of production as middle factor eliminated
- Lowered cost, more competitive
- Reduces risks as more control over market chain
- Quality of materials controlled
- Additional profit as profits from other stages assimilated.
- Increase in brand awareness if forward merger
DIS of vertical merger?
Diseconomies of scale if costs increase
Culture clash
Little expertise in running new firm
Price for firm can take to recoup
What is horizontal integration?
Merger between 2 business in same stage of production and same industry
ADV of horizontal integration
- Increase in market share
- Economies of scale
- Reduce competition
- Existing knowledge of industry
- Gain new expertise
DIS of horizontal integration
- Diseconomies of scale if unnecessary duplication of management roles
Conglomerate integration?
Merger between 2 businesses in different industry and stage of production
ADV of conglomerate integration?
- Reduces risk of business failure
- Increased size and connections in business
- New opportunities for growth
DIS of conglomerate integration?
- Lack of expertise in new industry
- Diseconomies of scale
- Results in job loss
- Worker dissatisfaction could result in reduced productivity
What is a joint venture?
When 2 businesses join together to share knowledge, resources and skills to form separate business identity for specified period of time. Can choose to reach new markets as it may be more cost effective than exporting.
Reasons for joint venture?
- Spreading risk
- Entering new markets
- Accessing international brand name
- Securing resources / supplies
- Competitiveness
ADV of joint venture?
Economies of scale
Retain their own identity
Opportunity to enter new market
Exchange of technology, expertise, specialised knowledge, resources
DIS of joint venture?
Both businesses have a say, slower decision making
Extensive negotiations needed for agreement
Culture clash
Share profits / costs
Franchising?
Business model where individual buys right to operate business using its branding and tools by receiving support from larger company in return for initial and ongoing fees. They operate under established system and receives training, marketing support, access to software and more.
ADV for franchising?
- Rapid expansion
- Capital injection
- Local expertise
- Motivated operators
- Brand recognition
DIS of franchising?
- Loss of control
- Shared profits
- Reputation risks
- Initial investment / support cost
- Legal compliances
Strategic alliances?
Similar to joint venture but businesses collaboration for period of time to achieve specified goal, works together for mutual benefit where resources often shared.
Properties of strategic alliances?
- Cooperate arrangement without formation of new legal identity
- Businesses retain its ownership and makes own decision
- Varied durations, terminated once agreement is reached
- Focused on specified area, joined to pursue particular goal like entering new market.
What are multi national companies?
Organisation that operates in 2 or more countries. They have grown over time due to benefits of being a large sized business.
What are reasons to become a MNC?
- Increased customer base
- Economies of scales
- Cheaper production costs
- Higher profit margins
- Increased brand development and awareness
- Diversification
- Avoid protectionists policies from other countries
What is a host country?
Nation that allows MNC to set up in its country. Impact on host country can be beneficial or disadvantageous
