Business in Contemporary Society v3

8/8/2019 Business in Contemporary Society v3

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Higher Business Management

Business in Contemporary Society


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Needs and WantsNeeds a need is something essentialto our lives: food, water, shelter,clothing

Wants a want is an additional luxurythat makes life pleasurable


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Business ActivityBusiness activity is any activity whichprovides us with goods and services

A country s wealth is measured by howmany goods and services it produces


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Business Cycle

BusinessCycle

Businessprovides

goods/services

Consumer buy

goods/services

Wealth forcompanies andemployees

Consumershave moneyto spend

from wages

Needs &

Wants


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Goods and ServicesGoods are tangible , things we can seeand touch like clothes, DVDs, cars etc

Goods can be durable or non-durable

Services are things that are done for us.They are intangible


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CompetitionFirms are in constant competition with eachother , and indeed how they fare is affectingby suppliers , buyers and even the threat of both new firms entering their market , andthe threat of substitute goods .

Michael Porter called this the Five Forces


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Factors of ProductionIn order to produce goods and services,businesses need to use resourcesLANDLABOUR

CAPITALENTERPRISE


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Factors of ProductionLand natural resources extracted fromEarth. Can be renewable or non-renewableLabour physical and mental effort of peoplein organisationsCapital man-made resources, such as

buildings, machines, toolsEnterprise bringing together the other threefactors of production


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Entrepreneurs A person who takesan idea and through

ability and visionturns it into a goodor service.

Richard Branson,left, is Britain s most famousentrepreneur


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IPO Diagram

Input Process Output

Raw materials workers FinishedN

atural resources machinery goods


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Sectors of Industrial ActivityPrimary Sector businesses involved inexploiting or extracting natural resources(mining, fishing, farming)Secondary Sector businesses involved inmanufacturing and construction. Includesutilities.Tertiary Sector Businesses involved inproviding services such as banking, tourism,security


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De-industrialisationEconomies begin in the primary sectorand as it grows moves through eachsector.Reasons for this can be:Changes in demand

Increased overseas competitionLack of investment Restrictive government policies


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Types of OwnershipSole Trader

PartnershipsPrivate Limited Co.Public Limited Co.

FranchisesCo-operativesCharities


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Sole TraderOne man/woman businessSole Trader owns business. Owner andbusiness are the sameOwner provides own capital (savings &borrowings)Profits go to the owner (but responsiblefor losses)Owner controls business, all decisions aretheirs


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Sole Trader +/-Easy to set upCan make decisionsquicklyPersonal attention tobusinessProfits are not sharedCan cater for localneedsBusiness affairs keptprivate

Limited capitalUnlimited liabilityCommitment (longhours, every day)New ideas may be

limited


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PartnershipsA business owned by several people 2-20Deed of Partnership contract dealingwith share of profits, roles and duties,capital contributed, dispute proceduresOwned jointly but not always equallyPartnership is an extension of sole traderCapital provided by partnersProfit goes to partners, not always equallyA ll partners entitled to participate inmanagement (unless silent partners )


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Partnership +/-M ore capitalExcessive hourscan be cut downM ore ideas may begeneratedSpecialisation canoccurLimitedpartnerships

A ctions of onepartner binds allM ore discussionand consultationLimitation onnumber of partners

Unlimited liabilityPartnership ends ifa partner dies


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Private Limited CompaniesOrganisation owned by a group ofindividualsM emorandum/ A rticles of A ssociationOwned by Shareholders (usually family)whose main function is to elect Board ofDirectorsM oney raised by share issue or borrowingOrdinary Shares & Preference SharesProfit shared between shareholders orretained by company


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Private Ltd. +/-M ore capitalLimited liabilityOwner can retaincontrolCompany does not

die if owners die

M ore capitalLimited liabilityOwner can retaincontrolCompany does not

die if owners die


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Public Limited CompaniesOrg. owned by a group of individuals, has plcafter name

Certificate of Incorporation approved byRegistrar of CompaniesShareholders 2+. Shares sold on stock exchange.Prospectus prepared to attract shareholders

Capital raised by share issue or borrowingProfits shared between shareholders orretained by companyBoard of Directors = Divorce of ownership andcontrol


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plc +/-M ore capitalEmploy specialistsLimited liabilityCompany does notdie if owners die

Shares can beissued throughstock exchange

Formation expensiveM ust publish accountsM ay become too largeto manage effectivelyDecisions moredifficult to arrive at


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FranchiseBusiness buys a license to operate awell known firmOwned by FranchisorFranchisee pays Franchisor to getlicense as well as a royaltyFranchisees runs business onFranchisors guidelines


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Franchise +/-Franchisor provides alot of support;training to startbusiness, equipment,materials, advice,brand nameTake over asuccessful, winningformula

Franchisee doesnthave completefreedomM ay not agree withdecision placedupon you


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Co-operativesOrganisations set up to benefit workers orconsumers

Retail owned by workers and shoppersProducer owned by workersRetail every pound spent receivesdividend or voucherProducer money comes from workers whoshare profits and share a salaryBoard of Directors (who may also beworkers)


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Co-operatives +/-Less conflictbetween workersand managersWorkers should bemore motivated

Difficult to growand find additionalcapitalNew workers maynot be able to raisecapital needed to

join co-op


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CharitiesA n organisation formed to raisemoney for underprivileged peopleTrusteesCharities raise money through shops,donations and lottery money

Surplus after costs goes to theneedyBoard of M anagers


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Charities +/-If charity hasstatus ofcharitable trust itdoesnt pay taxLooks after lessprivileged and theenvironment

Less money may bedonated due tointroduction oflotteryRelies on voluntaryworkers who maynot be paid forwork


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Public Sector OrganisationsBusinesses set up by an Act of Parliament Government provides capital throughTreasuryGovt. appoints Chairman and Board

They may be natural monopoliesMay be unattractive to private sectordue to enormous capital investment


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Public CorporationsReasons for being set-up:To avoid wasteful duplication andconfusionTo set up and run important non-profitable servicesTo prevent exploitation of consumersTo protect jobs and key industries


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PrivatisationThe selling off of Public Corporations tothe private sectorWhy Privatise?To improve efficiency by introducingcompetition

Shareholders in Modern SocietyPrivatisation raises huge monies forgovernment


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Business ObjectivesSurvivalGrowth and development Profit maximisationSocial responsibility

Providing a service


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Objectives by Business Sector

Type of Business

Aims/Objectives

Private Sector Survival, profit maximisation,increase returns to shareholders

Voluntary Sector Help others, maximise cashcollections, offer a service tocommunity

Public Sector Help people, improve quality of service, cut costs, raise revenue


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Questions a Business Should

Ask Itself Peter Drucker (1973) believes abusiness should ask:What is our business?Who is the customer?What is value to the customer?What will our business be?What should our business be?


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Mission Statements A company s raison d tre

Why Define Aims/Objectives?End result to work to

Goals motivate peopleKeeps focus and direction


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Mission Statements We exist to refresh everyone wetouch

We strive to lead in the invention,development and manufacture of theindustry's most advanced informationtechnologies


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Mission StatementsQualities of Good Mission Statements:

VisionaryClarify intentions and aspirationsDescribe current activities and intendedpositionKey values of organisationCapable of being realised


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StakeholdersStakeholders are people with a keyinterest in a businessStakeholders effect businesses by

exerting influence over decisionsTheir influence depends on the degreeof their involvement or relative interest in company


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Identifying StakeholdersOwnersEmployeesCustomersBanksInvestors

Local government suppliers

Management MembersCommitteesDonorsTaxpayers

Communityshareholders


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Stakeholder Aims/ObjectivesOwners = profits, dividendsManagers = promotion, job securityEmployees = wages, workingconditions, job securitySuppliers = regular orders, payment Customers = low prices, high qualityBanks = loans repaid on time


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a) What is a stakeholder in business?b) Give 3 examples of a stakeholder in a

businessc) What kind of influence may stakeholders

be able to exert on business?d) Complete the stakeholder grid available on

the work area


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Influence of StakeholdersCabinet BackbenchersParty MembersTrade UnionsMediaGeneral Public(Voters)Pressure GroupsTony Blair is

influenced by:


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Pressure Groups A Pressure Group is an organisation formed

by people with a common interest, who get together in order to further that interest.


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TodayPEST Analysis (External Analysis)Political FactorsEconomic FactorsSocial Factors

Technological factorsCompetitive Factors


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PEST Analysis


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Political FactorsTax policyEmployment lawsEnvironmental regulationsTrade restrictions and tariffs

Political stability


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Economic FactorsEconomic growthInterest ratesExchange ratesInflation rate

Unemployment


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Social FactorsDemographicsLifestylesTrends and fashions

Attitudes

Education levelsEthnic markets


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Technological FactorsICTR&D activity

AutomationRate of technological change

E-commerce


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Competitive FactorsProduct differentiationPrice warsProfit marginsImitators

Location


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Sources of Finance


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Internal Sources of FinanceRetained Profits profit kept bycompany for future activities

Selling Assets money raised by sellingoff an asset no longer needed

Both are Short-term


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External Sources of FinanceMedium Term (1-10 years)Leasing renting equipment orpremisesHire Purchase acquiring an asset oncredit followed by fixed payments. Afterlast instalment purchaser owns asset.Loans


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External Sources of FinanceShort Term (up to 1 year)Overdraft borrowing more moneythan is available in bank account Trade Credit businesses receive goodsfirst, then pay laterFactoring a specialist businesscollecting unpaid debts for a fee


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Additional Sources of FinanceLEC ScottishEnterprise

RenfrewshireLocal authoritiesEast RenfrewshireCouncilGovernment PartnershipsBusiness Gateway

Grants andallowances

Repayable Grants,Soft Loans,SubsidiesEU grantsRegionalDevelopment Fund& Social Fund


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Methods of GrowthMerger an agreement to bring two firmsunder one board of directors

Takeover when a firm buys over 50% of another firm s share capitalDe-merger when a firm is split into twopartsDivestment selling off parts of business nolonger fitting long-term strategy


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Horizontal IntegrationOccurs when a firm takes over ormerges with another firm at the samestage of production.

+ =


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Benefits of Horizontal

IntegrationThis can help eliminate competitionCan lead to increased market share

Allows for economies of scaleCombined company becomes morestrong and secure

Acquisition of other company s assets


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Vertical IntegrationRubberplantation

Carshowroom

Forward

Backward


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Benefits of Vertical IntegrationIt reduces costs as there are nomiddlemen; more profits are kept Company benefits from greatereconomies of scaleProcesses can be linked easily (suppliesare guaranteed, retails outlets availablefor products to be sold in)


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DiversificationDiversification is when businessesreduce risk by expanding the number of goods/services they provide


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Diversification Benefits (akaConglomerate Integration)

Reduces risk of business failure (if onepart fails, there is another tocompensate!)Business becomes larger and morefinancially secure

Firm acquires assets of the othercompany


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MultinationalsWhat is a Multinational?

A company with H Q in one country but with bases, manufacturing or assemblyplants in others


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Why become a Multinational?Companies may become Multinationalsto:increase market sharesecure cheaper premises and labourto avoid tax or trade barriersto take advantage of government grants


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Multinationals +/-Provide jobs &incomeImprove level of expertise of localworkers

Economies of Scale

Jobs may only below-level skillsProfits go back tohome countryCut cornersMay exert politicalmuscle


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Social Responsibility SR is about how companies manage theirbusiness processes to produce an overallpositive impact on society - CSR

Major ConcernsHigh Fossil fuel emissions

Global warmingExploitation of workersSafety of employees


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Social ResponsibilityLevi s Sweatshop workers EuroDisney US culture invades FranceDDT pesticide banned in High incomecountries, yet sold on to low incomenations


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AftermathClean-up cost $100 million1994 fined $5 billion by US courts

Exxon Valdez synonymous withcorporate arrogance and shirking of responsibility Alabama court

Consumer boycott: Exxon slipped from1st to 3 rd biggest oil company1999 Exxon merged with Mobil


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Has Exxon learned it s lesson?In 2002 ExxonMobil donated:

$2 million to US Education AllianceProgram

$100 million to Global Climate andEnergy Project


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Social Responsibility +/-Customer perceivescompany in good

light

Financial cost

Business in Contemporary Society v3

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