Unit 1: Introduction to Business Management

Question 1

Primary Sector

Answer 1

The part of the economy engaged in extraction or production of raw materials
eg. fishing, mining

Question 2

Secondary Sector

Answer 2

The part of the economy engaged in refining raw materials or the manufacture of finished goods
eg. automobiles, oil refining

Question 3

Tertiary Sector

Answer 3

The part of the economy engaged in the delivery of services
eg. banking, accommodation

Question 4

Quaternary Sector

Answer 4

The part of the economy engaged in the delivery of knowledge-based services
Involved in production, processing and transmission of information
eg. consulting, education

Question 5

Private Sector

Answer 5

The part of the economy owned by individuals or groups
Primary focus is typically the maximisation of profit

Question 6

Public Sector

Answer 6

The part of the economy owned by regional, local or national governments
Primary focus is aiding the local community
Providing essential services
Providing job positions
Ensuring safety and order
eg. public schools, government services

Question 7

Sole Trader

Answer 7

Business owned by an individual
No legal distinction exists between the owner and the business
The owner has unlimited liability for the losses incurred by the business
The business ceases to exist when the owner dies

Question 8

Partnership

Answer 8

Business owned by a group of individuals
No legal distinction exists between the owners and the business
The owners are collectively liable for 100% of the losses incurred by the business
Deed of partnership / Partnership agreement outlines the responsibilities and division of profits between partners

Question 9

Privately Held Company

Answer 9

Business owned by a group of individuals
Articles of association make the business a separate legal entity from its owners
Owners have limited liability for losses incurred by the business and can only lose as much finance as they themselves invested
Number of shareholders is limited, as shares need to be offered by existing owners and cannot be purchased on the public stock exchange

Question 10

Publicly Held Company

Answer 10

Business owned by a group of individuals
Articles of association make the business a separate legal entity
Owners have limited liability for losses incurred by the business and can only lose as much finance as they themselves invested
Stock market flotation and initial public offering needed to make a private limited company “go public”, after which shares of the business become available for purchase on the public stock exchange
Must disclose sensitive information, such as accounting, to the public

Question 11

Social Enterprise

Answer 11

Business advancing a social purpose in a financially sustainable way
Share of the profits often reinvested into the business
Typically not reliant on philanthropy

Question 12

For-Profit Social Enterprise

Answer 12

Social enterprise that earns a profit, which is sometimes distributed among the business’ owners
Primary aim is still to provide a social service

Question 13

Cooperative

Answer 13

Business owned and operated by its members, sharing any profits
eg. financial, housing, workers, producer, consumer (often agriculture)

Question 14

Non-Proft Social Enterprise

Answer 14

Social enterprise that generates little to no surpluses (instead of profit)
Primary aim is to provide a social service

Question 15

Non-Governmental Organisation (NGO)

Answer 15

Non-profit organisations, often with a humanitarian purpose
Independent of the government, but may receive government grants or funding, working in cooperation with the government

Question 16

Charity

Answer 16

Specific form of non-governmental organisation
Relies heavily on donations, but does not need to pay any tax

Question 17

Vision Statement

Answer 17

A philosophy, vision or set of principles which steers the direction and behaviour of a business
Typically does not change
Provides internal stakeholders with motivation and gives external shareholders a sense of shared beliefs

Question 18

Business Objectives

Answer 18

Articulated, measurable targets that must be met to achieve the business’ long-term aims. (Ideally: Specific, Measurable, Achievable, Relevant, Time-specific)

Question 19

Mission Statement

Answer 19

States a company’s purpose and explains why the business exists
Outlines a business’ aims and values
Often changes when there is significant change in the internal- or external business environment
Provides internal stakeholders with a direct goal and gives external stakeholders insight into what the business is about

Question 20

Strategic Objectives

Answer 20

Long-term goals of a business that indicate how the business intends to fulfil its mission
Often performance goals, eg. market share, profitability
Usually set by board of directors/executive management

Question 21

Tactical Objectives

Answer 21

Medium- to short-term targets that, if consistently met, help the business achieve its strategic objectives
Usually set by executive/middle management

Question 22

Operational Objectives

Answer 22

Short-term goals governing the day-to-day improvements of a business
If consistently met, help the business achieve its tactical objectives
Usually set by middle/floor management

Question 23

Corporate Social Responsibility

Answer 23

View that businesses, rather than focusing purely on shareholder value, should contribute to the social, economic and environmental well-being of society

Question 24

Stakeholder

Answer 24

A person or organisation that affects or is affected by a business
Often classified as internal or external

Question 25

Internal Stakeholder

Answer 25

A stakeholder who operates inside the business
Owners, managers, employees

Question 26

External Stakeholder

Answer 26

A stakeholder who operates outside the business
Customers, suppliers, local communities, pressure groups, investors, creditors, governments, media

Question 26

Economy of Scale

Answer 26

Decrease in average cost per product as output or activity increases

Question 27

Diseconomy of Scale

Answer 27

Increase in average cost per product as output or activity increases

Question 28

Fixed Costs

Answer 28

Costs which do not vary based on the amount of goods or services produced

Question 29

Variable Costs

Answer 29

Costs which increase or decrease based on the amount of goods or services produced

Question 30

External Growth

Answer 30

Sometimes referred to as inorganic growth
Occurs when a business expands with the aid of resources and capabilities attained by acquiring another company or forming some type of relationship with another organisation
eg. merger, acquisition, joint venture

Question 30

Internal Growth

Answer 30

Sometimes referred to as organic growth
Occurs when a business grows by relying on its own resources and capabilities
eg. investment in new products, sales channels, stores

Question 31

Merger

Answer 31

Occurs when two theoretically equal companies legally become one company

Question 32

Acquisition

Answer 32

When one company purchases a majority (>50%) of all the shares of another company

Question 33

Takeover

Answer 33

When one company acquires the majority (>50%) of all the shares of another company
Usually, “takeover” implies that the acquisition is not welcomed by the target company

Question 34

Joint Venture

Answer 34

An organisation created, owned and operated by two or more businesses
Legally distinct from the organisations that created it

Question 35

Strategic Alliance

Answer 35

Occurs when two or more businesses cooperate for mutual benefit
Members retain their independence
Less binding than joint ventures

Question 36

Franchising

Answer 36

Method of distributing products or services
Franchisor sells the rights to use established brands and services to franchisees
Franchisee pays an initial fee and percentage of the revenue to the franchisor

Question 37

Multi-National Company (MNC)

Answer 37

Company operating in two or more countries
Often large, but doesn’t necessarily have to be