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1
...

-

Business activity at all stages involve adding value (to resources or semi-completed goods)
This makes them more desirable/valuable to the to the final purchaser

The roles of a business are…
1
...
Use resources (inputs) – factors of production – in order to produce a product (output)
3
...
Consumer goods: the physical and tangible goods sold to the general public
...
g
...
Consumer services: non-tangible products that are sold to the general public (e
...
haircuts)
3
...
g
...
Producer services: non-tangible goods sold to other businesses (e
...
insurance)

Business inputs/factors of production…
LAND: includes land itself, as well as renewable and non-renewable resources of nature
LABOUR: manual and skilled labor that make up the workforce of a business
...
g
...
g
...
g
...
g
...

Relevance of each sector is measured in terms of employment or output levels as a proportion
of the whole economy (this varies between different economies/countries)
Industrialization = growing importance of the secondary sector
...

This happens as a country develops further

ADVANTAGES
o
o
o
o
o

Total national output (gross domestic product) increases and this
raises average standards of living
...

Expanding manufacturing businesses will result in more jobs being
created
...

Value is added to the country’s output of raw materials rather than
simply exporting these as basic, unprocessed products
...
It may also result in depopulation of
rural areas and problems for farmers in recruiting enough workers
...

Imports of raw materials and components are often needed, which
can increase the country’s import costs
...

Pollution from factories will add to the country’s environmental
problems
...


Reasons for increase in tertiary sector importance:
-

Rising incomes – associated with higher living standards and lead consumers to spend more
disposable income on services rather than more goods (e
...
restaurants and tourism)

-

Increased competition between manufacturing companies – increased imports of cheaper goods
(to maintain competitiveness) take away from domestic/local secondary sector firms, causing
their importance to fall

Impact:
-

Structural unemployment – manufacturing workers experience difficulty in finding employment
in other sectors of industry

BUSINESS STARTUPS
Why start a business?
1
...
Desire for independence
3
...
Deciding on a business idea
2
...

3
...

Operating from home is common but has drawbacks;
- May be far from area with biggest market potential
- Lacks status
- May cause family tension
- Difficult to separate private and work life
4
...
Long term strength is dependent on
building customer loyalty
...
g
...
Competition
-

Unless business idea is extremely unique, this is almost always a problem
Compete with older, well-established firms with more resources and the same target market
(harder for them to grow)
Have to win over customers with better service

2
...
Lack of finance/working capital
-

Obtaining finance can be difficult for several reasons;
o Lack of own sufficient finance
o Lack of awareness of available financial support
o Lack of trading record to present to banks as evidence of past success
o Poorly produced business plan that wont convince investors

-

Working capital shortages can be avoided by doing the following
o Constructing a cashflow forecast to assess liquidity/working capital needs
o Inject sufficient start-up capital to get a good jump-start
o Establish good relationship with the bank so that short term problems can be easily
solved
o Do not allow credit periods that are too long (+ chase down late payers)

4
...
g
...
Changes in business environment

-

Change can make the original business idea less successful
Changes include; new competitors, legal changes (e
...
outlawing products or putting age
restrictions), less consumer disposable income and technological changes making
current methods ‘outdated’

BUSINESS PLANS

BUSINESS PLAN: a written document that describes a business, its objectives/strategies, the market its in
and the financial forecasts

Contents of a business plan include…
-

Executive summary (overview of business and strategies)
Description of business opportunity (details of what’s being sold, why and to whom)
Marketing and sales strategy (why entrepreneur thinks product will sell & how he aims to do so)
Management team and personnel (skills and experience of staff)
Operations (production facilities, IT systems etc
...
g
...
Innovative – invent a new product or a new way of presenting an existing product in order to
attract new customers
2
...
Multiskilled – has to operate many different tasks
4
...
Leadership skills – need a personality that encourages employees
...
Risk-taker – risk needed for results
...
National level of unemployment decreases

-

Economic growth – increase in GDP of the country and improved living standards
...
Increased use/provision of IT helps
advance the business sector (this also increases competitiveness)

1
...


Common objectives of public sector organizations:
1
...
g
...
preventing private monopolies – single firms dominating an industry – from controlling supply
3
...
g
...
SOLE TRADERS
SOLE TRADER: a business in which one person provides the permanent finance and, in return, has full
control of the business and is able to keep all the profits
...
PARTNERSHIPS
PARTNERSHIP: a business formed and controlled by two or more to carry on a business together with
shared capital investment and usually shared responsibilities
...

SHARE: certificate confirming part ownership of a company and entitling the shareholder to dividends
and certain shareholder rights
DIVIDEND: money payed back to shareholders after all tax/expenses are deducted as a reward for their
risk/investment
SHAREHOLDERS: individuals/institutions that buy/own shares in a limited company

LIMITED COMPANIES
-

The ownership of companies is divided into small units called shares

-

People can buy these and become ‘shareholders’

-

if person or organisation own more than 50% of the shares they are the majority
shareholders, meaning they have complete control over the business

LTDs, PRIVATE LIMITED COMPANIES
LTD: small to medium sized limited company/business that is owned by shareholders who are
often members of the same family
...

ADVANTAGES
o
o
o
o
o

shareholders have limited liability
incorporated business
original owner often able to remain in control
large amounts of capital can be raised
greater status than unincorporated business

DISADVANTAGES
o
o
o

legal formalities involved during establishment –
very time consuming
difficult to sell shares, majority need to be in
agreement
accounts available for public inspection – less
secrecy and competitors can use it to their
advantage

PLCs, PUBLIC LIMITED COMPANIES
PLC: a limited company, often a large business, with the legal right to sell shares to the general
public: its share price is quoted on the national stock exchange
IPO: initial public offering, when a company floats their shares (put ap for sale) on the stock
exchange for the very first time
...
SOCIAL ENTERPRISE: a business with mainly social objectives that reinvests most of its
profits into benefiting society rather than maximizing returns to owners
...
CO-OPPERATIVES: a group of people acting together to meet the common needs and
aspirations of its members, sharing ownership and making decisions democratically
-

Aren’t about making big profits for shareholders, but creating value for
customers and secure employment for workers

-

Retail/consumer cooperatives: business owned by customers for their
mutual benefit
...

Agricultural cooperative: when farmers pool (group together to maximize
advantage or minimize risk to users) resources for mutual benefit e
...
in the
buying of fertilizer
Worker cooperative: engaged in manufacturing
...
MICROFINANCE INSTITUTIONS: the provision of very small loans by specialist finance
businesses, usually not traditional banks
-

Very important source of finance in countries that are still developing or have
relatively low income
Provides finance to poor people with no bank accounts who wouldn’t be able
to get loans from banks
Helps with starting up small businesses
Entrepreneurship is greater if microfinance is provided
Average incomes are higher due to more successful businesses

However,
-

Interest rates can be quite high due to administration costs of many small
loans
It may encourage poor people to take on debts that they can’t pay back
Wouldn’t be appropriate in conditions that pose severe challenges to loan
repayment (e
...
countries with dispersed populations or high incidence of
disease)

*For microfinance to be appropriate, the clients must have the capacity to repay the loan

under the terms by which it is provided
...
PUBLIC-PRIVATE PARTNERSHIP (PPP): involvement of the private sector in the form of
management expertise/financial investment in public sector projects aimed at
benefiting the public
PFI – investment by
private sector
organizations in public
sector projects

-

Government funded – privately managed, the government provides all/part
of the funding, but the organization is managed by a private business that
uses private sector methods and techniques to control it efficiently
Private sector funded – government or state managed
...
It is also known as a private finance initiative (PFI)
Government-directed, private sector finance+management – encourages
private sector management/funding of public projects

COSTS

BENEFITS

o Lack of job security for worker - the private sector

o Public sector projects that couldn’t have been

o

o

o
o

business could try to increase profit by cutting
wages/benefits
Increased tax – high rents and leasing charges for
PFI’s
Failure of the scheme – private sector businesses
may be too inexperienced to operate large public
sector projects
Risk of vulnerability for groups in society if the
scheme fails

o

built without private sector involvement can now
exist
Increased operational efficiency – private sector
businesses aim to make profits so must be
efficient
...

Possibly lowered tax – if they use finance from
private sectors to pay

NON – PROFIT SOCIAL ENTERPRISES
NON-PROFIT ORGANISATION - Any organization that has aims other than making and
distributing profit and is usually governed by a voluntary board
1
...
g
...
CHARITIES – an organization set up to raise money to help people in need or to support
causes that require funding

1
...
Without one we can’t assess whether the objective has
been met or not
They ensure…
1
...
Consistency with strategic corporate objectives
3
...
S TACTICS

STRATEGY
Long term
Difficult to reverse since resources will have been
committed
Taken by director/senior managers
Cross functional – involve all major departments

o
o
o
o

TACTICS
o
o
o

o

Short/medium term
Reversible but there may still be costs involved
Taken by lesser senior managers or subordinates
with delegated authority
Tactical decisions often only impact one
department

COMMON CORPORATE AIMS
1
...

Owners of smaller businesses may be more concerned with issues of independence and keeping control – these may be of more
importance than making higher profits
...

Profit maximisation may well be the preferred objective of the owners/shareholders, but other stakeholders will give priority to
other issues
...
Hence, the growing concern over job security for the workforce and the
environmental concerns of local residents may force profitable business decisions to be modified, giving lower profit levels
...


2
...
Often objective of small business owners who want to live
comfortably but not work long hours
3
...

BENEFITS
o
o
o
o

Less likely to be taken over
Benefit from economies of scale
Managers can gain higher salaries and fringe benefits
Can remain competitive if the keep growing

LIMITATIONS
o
o
o
o
o

Overexpansion can lead to cashflow problems
Sales growth might have been achieved at the
expense of lower profit margin
Can experience diseconomies of scale
Using retained profits to finance growth can mean
lower short-term returns to shareholders
Growth into new business areas/activities can result
in loss of focus and direction for the whole
organization

4
...
Increasing market share
indicates that the marketing mix of the business is more successful than that of their
competitors
...

BENEFITS OF INCREASED MARKET SHARE
o
o
o

Retailers are keener to stock and promote the best-selling brand
More profit for producer - Sell their products at a higher price to retailers at higher price
(lower profit margin for retailer) but will still sell a lot since they’re so keen to stock it
Promotional campaigns become more effective as they can advertise as the best brand on
the market

5
...
Once the business is firmly established then other long-term objectives can be
implemented
...
MAXIMISING SHORT-TERM SALES REVENUE: benefits staff when bonuses are dependent on
sales revenue levels (unless they achieve it through lowering prices)
7
...
Encourages
shareholders to invest more and encourages potential investors to buy shares
...

Not taking bribes to secure business contracts can
mean losing out on significant sales
...

Accepting that it is wrong to fix prices with
competitors might lead to lower prices and profits
...


BENEFITS
o
o

o
o
o

Avoiding potentially expensive court cases can
reduce costs of fines
...

Ethical businesses attract ethical customers and, as
global pressure grows for corporate social
responsibility, this group of consumers is increasing
...

Well-qualified staff may be attracted to work for
companies that have ethical and socially responsible
policies
...

BENEFITS
o

o

o
o

o

The image of the business and its products can be
improved with a green or socially responsible
approach
...


Attracting the best-motivated and most efficient
employees may become easier as many workers will
prefer to work for and be associated with socially
aware businesses
...


The goodwill of other stakeholder groups, resulting
from socially responsible behavior, could lead to better
relations with workers, suppliers, customers and the
local community
...



DRAWBACKS
o

o

o

o

o

Short-run costs could increase, e
...
fitting anti-pollution
equipment, paying workers above-poverty wage levels,
paying suppliers promptly, not exploiting vulnerable
groups in advertising
...


Loss of cost and price competitiveness if rival businesses
do not accept social responsibilities and have lower
costs as a result
...


There could be a considerable social backlash against
a
business that claims to be socially responsible but is
discovered to operate in socially irresponsible ways, e
...

a furniture maker claims to use sustainable timber but
buys from rainforest suppliers – this is sometimes
referred to as ‘greenwash’
...
In most countries, businesses can no longer pay staff very low wages or avoid
legal responsibility for their products
...
This can cover pollution
levels, health and safety record, sources of supplies, customer satisfaction and contribution to the
community
...


Sets targets for improvement in social performance by
comparing audits with the best-performing firms in
the industry
...


Improves a company’s public image and this can be
used as a marketing tool to increase sales
...


A social audit does not prove that a business is being
socially responsible
...

Companies have been accused of using them as a
publicity stunt or a ‘smokescreen’ to hide their true
intentions and potentially damaging practices
...


MORE ABOUT CORPORATE OBJECTIVES
CORPORATE OBJECTIVE ISSUES
o
o

o
o
o

They should be achievable and measurable if they are to
motivate employees
...
Unless staff are informed of the objectives and their
own targets that result from these, then the business is unlikely
to be successful
...

They should indicate a time scale for their achievement
They must be based on the corporate aim and should link in with
it
...
CORPORATE CULTURE: code of behaviour and attitudes that influences the decision- making
style of the managers and other employees of the business
...
SIZE AND LEGAL FORM: impacts type of objectives
3
...
LEVEL OF ESTABLISHMENT: whether they’re new or well established will affect their objectives
CHANGING BUSINESS OBJECTIVES
1
...

3
...


A business achieving an objective and needing a new one
Change in management or loss in management (different objective until replacement found)
Change in competitiveness of the market or the economic environment
A short-term objective being replaced with a longer term on

WHAT TO CONSIDER BEFORE MAKING A CHANGE IN OBJECTIVES
Is the internal or external change significant and long-lasting enough to make a change in
objectives necessary?
2
...
What would be the cost and other consequences of new business objectives for the business
and its staff?
4
...


1
...

STAKEHOLDER: any person or group of people that have a direct interest in a business’ activity

Internal Stakeholders
-

Employees
Managers
Stakeholders

External Stakeholders
-

Customers
Suppliers
Government
Banks (and other creditors)
Competitors
Special interest groups

•
•

pressure groups: want to end pollution or animal testing etc
...
g
...
g
...
g
...
g
...
g
...
Sharing
business profits can encourage workers
to work
in ways that will increase long-term
profitability
...


Share-ownership schemes – to reduce conflict
between workers, managers
and shareholders

These schemes, including share options
(the right to buy shares at a specified
price in the future) aim to allow
employees (at all levels including
directors) to benefit from the success of
the business as well as shareholders
...


Administration costs, negative impact on employee
motivation if the share price falls, dilution of ownership –
the issue of additional shares means that each owns a
smaller share of the company
...
Both sides can agree
beforehand whether this settlement is
binding, that is they have to accept it
...


Workers have a real contribution to
make in many business decisions
...


Some managers believe that participation wastes time and
resources, e
...
in meetings that are just ‘talking shops’, and
that the role of the manager is to manage, not the workers
...
g
...


The costs of the business might rise if the arbitrator
proposes higher wages or better work conditions than the
employer was originally offering
...
g
...


1
...
g
...
g
...


TECHNOLOGICAL ISSUES
o
o
o
o

Can the food production process be automated? Is
technical support available?
Online selling – is full internet/broadband
coverage available? Will customers order online?
Are IT support services available locally?

ENVIRONMENTAL ISSUES
o
o
o
o
o

Environment – is environmentally friendly packaging
technically possible and available in this country?
Are waste-recycling facilities available?
Is sustainable/renewable energy available in
this country?
Are environmental pressure groups powerful in this
country?

LEGAL ISSUES
o
o
o
o
o

Political stability of the country – is civil unrest likely?
Employee and consumer protection laws – how
restrictive are these, e
...
health and safety laws?
Trade restrictions or membership of free- trade bloc –
can food be imported without tariffs?
Environmental regulations – what forms of packaging of
fast food are allowed?
Health concerns about fast food –
could the government pass new laws about the
contents of fast-food products?

ETHICAL ISSUES
o
o
o
o

Are there high ethical standards in public and
commercial life in this country?
Do suppliers treat workers ethically?
Is bribery and corruption widespread in this
country?

INTERNET: the worldwide web of communication links between computers
ECONOMIC GROWTH: an increase in the country’s GDP
RECESSION: 2 quarters (6 months) of falling GDP (negative growth)
UNEMPLOYMENT: the number of people in an economy willing and able to work but cannot find
employment
EXCHANGE RATE: the value of 1 currency in terms of another currency

SOCIAL

Social/cultural changes (and their impact) include…
1
...

3
...


ageing population
change in role of women (seeking more employment)
improved education facilities
early retirement (common in high-income countries) – more leisure time for growing #
of wealthy people and possibly may lead to increased job vacancies
5
...
job insecurity (usually due to globalization) – workers more inclined to take parttime/temporary employment
7
...
(younger
employees more adaptable but older employees
may be more loyal)

EFFECTS ON BUSINESSES
o

o

o

part time workers can offer more flexibility by
being available at peak times – keeps overheads
down
part time can mean lack of team environment and
contribute less of a result
flexible employment contracts can reduce fixed
costs full-time salaried posts
...
focus on new products development
o reduces time taken for new products to reach the market CAD/CAM software speeds up
manufacturing process
o communication technology allows different components to be worked on
simultaneously
2
...
developing new/better processes
o one improved system can replace many old ones
o makes internal processes more efficient and cost effective
4
...
competitive advantage
o all the mentioned benefits help increase the competitiveness of a business
o to avoid the risk of losing market share, businesses need to quickly follow up on their
competitors’ new innovations with similar products
o through the use of new, rapid software, businesses can rapidly and cost-effectively bring
the product to the market
6
...
g
...
T APPLICATION

BUSINESS APPLICATIONS

Spreadsheet programs

o

o

o

o

Computer-aided design
(CAD)

o

o

Computer-aided
manufacturing (CAM)

o

o

IMPACT ON BUSINESS

Financial and management
accounting records can be
updated and amended
...


Changes in expected performance
can be inputted to the
spreadsheet and changes in total
figures made automatically
...


o

Nearly all design and architectural
firms now use these programs for
making and displaying designs,
e
...
cars, house plans, furniture,
garden designs
...



o

Programs are used to operate
robotic equipment that replaces
many labor- intensive production
systems
...


o

o

o

o

o

o
o

o

Internet/intranet

o

o

o

o

Marketing department – for
promoting to a large market and
taking orders online 

Operations management –
business-to-business (B2B)
communication via the internet is
used to search the market for the
cheapest suppliers
...


Intranets allow all staff to be
internally connected via
computers
...


‘What-if’ scenarios in 
budgeting and
sales forecasting can be demonstrated,
e
...
what would happen to forecasted
profits if sales rose by 10% following a 5%
cut in price?

Saves on expensive designer salaries as
work can be done more quickly
...


Can be linked to other programs to obtain
product costings and to prepare
for
ordering of required supplies
...


Productivity is increased and variable
costs per unit are lower than in noncomputerized processes
...


Flexibility of production is increased –
modern computer-controlled machinery
can usually be adapted to make a number
of different variations of a standard
product, and this helps meet consumers’
needs for some individual features
...


Cost savings from cheap internal and
external communications
...


Web pages project a worldwide image of
the business
...


B2B communications can obtain supplies
at lower costs
...


Positive impact of IT on management and labor relations…
1
...
IT can be used for quick processing/analysis of data – helps with faster interpretation and
decision making
3
...
Such ease of data transfer can lead to information overload – prevents decision makers from
identifying most important info due to its sheer volume
2
...

2
...

4
...
g
...
However, inferior goods
may be rejected by consumers who now have higher incomes
...
Suppliers of cheaper, inferior goods may benefit from this
...
g
...
g
...
Businesses may offer their own credit deals to customers
...
Selling assets or
new shares to reduce debt may be considered
...


The country’s currency is likely to appreciate as more investment finance from abroad is
attracted to the country – see effects below
...
g
...
80 there is a depreciation
of
the euro) will make imported goods more expensive
...
e
...


More expensive imports can raise a business’s costs if it has to buy materials or components
from other countries – they might try to buy more supplies from domestic suppliers
...


Foreign businesses may decide to locate in the country with the depreciating currency – it will
avoid the risk of its goods becoming too expensive to import into the country
...


Higher rates of income tax reduce consumers’ disposable incomes – demand for luxury and
income-elastic products will fall so businesses selling such products may offer lower-priced
alternatives or be forced to enter other markets
...


A decision to relocate to a country with lower rates of tax might be made
...


Higher numbers of workers without employment will give businesses more choice in employee
recruitment
...


Average consumer incomes are likely to fall with extensive unemployment – the demand for
budget ranges of cheaper goods, e
...
supermarket own brands, could increase and production
of these will have to rise to meet demand
...
If businesses cannot increase
prices for fear of demand falling, profit margins will fall
...


Demand-pull inflation will encourage firms to raise prices to increase profit margins
...


ENVIRONMENTAL INFLUENCES

IMPACT ON OBJECTIVES/STRATEGIES

Environmental controls on business
activities such as waste disposal, use of
sustainable energy, reducing packaging

Strict environmental controls could increase business costs and make a
country less attractive for new investment
...


Threats from natural events such as
drought, earthquakes and floods

These threats could make it unwise to consider operating in the areas
most likely to be affected – especially if the business activity is itself
potentially dangerous as with chemicals products
...
Political factors might be
important too if these resources are in politically unstable regions

Infrastructure – road and air transport
facilities, for example

Poor infrastructure makes business activity more difficult and often more
costly
...


ENVIRONMENTAL

POLITICAL
POLITICAL INFLUENCES

IMPACT ON OBJECTIVES/STRATEGIES

Government stability

If the government is constantly changing then this could lead
to frequent changes in laws relating to business activity
...
Generally, business managers prefer stable
government that has public support
...
g
...
The global trade embargo against South Africa helped
to bring down the non-democratic pre- Mandela regime
...


Government attitude to private ownership

If a government is committed to nationalisation of private
businesses and high taxes on private wealth then this will
discourage privately owned businesses from setting up or
expanding in this country
...
Global
business operations tend to expand and locate in those
countries which encourage free trade and are members of
important free-trade groupings
...

2
...

4
...


Employment laws
Consumer protection laws
Business competition laws
Political changes resulting from new government
Major policy changes

LEGAL FACTORS

IMPACT ON OBJECTIVES/STRATEGIES

Improved employee legal protection, e
...
better
health and safety at work, redundancy pay,
protection from discrimination, minimum pay
levels, maternity pay

o

o

o

Consumer protection laws that constrain
businesses from advertising inaccurately or
inappropriately, selling faulty goods or those
described incorrectly, high-pressure selling
tactics, not allowing consumers to change their
minds after signing credit agreements

o

Competition laws can restrict unfair
competition or restrictive practices by
businesses, monopoly exploitation of
consumers, mergers and takeovers (external
growth) that could lead to a monopoly

o
o

o
o
o

o

Increases cost of employing staff – businesses may be
reluctant to expand in this country by taking on extra staff
...
For example,
Germany has some of the most rigorous laws protecting
workers’ rights, yet labor productivity is one of the highest
in the world
...
Some businesses offer
benefits above the legal minimum for this reason
...


Design and production of new products will have to put
customers’ safety and product quality as priorities
...


All of these strategies will add to costs
...


Collusive agreements with competitors are not permitted
...


Expand into other countries rather than growing in existing
country which can 
lead to monopoly market share
...
6
GROWTH AND EVOLUTION
SCALE OF OPERATIONS: the maximum output that can be achieved using the available input/resources –
this scale can only be increased in the long term by employing more of all the inputs
ECONOMIES OF SCALE: a reduction in the firm’s unit (average) costs of production resulting from an
increase in the scale of operations
Average cost = total cost / quantity of products
*producing more is not the same as increasing scale of operations, this is only done by using more resources

1
...
Technical economies:
- Larger businesses with high output levels can afford more expensive technology
- Average fixed costs can be reduced since machines can work at high capacity levels
3
...
Marketing economies:
- Larger businesses spread the cost of promotion over a larger level of output
- Average cost per person reached (through the ad) is lower for larger businesses

5
...
Risk bearing: can afford to open a new branch or carry out MR with less risk due to
resources/establishment

7
...


Communication problems:
- Large-scale operations = poor feedback to workers (reduces incentive), info overload, delayed info,
and message distortion
- These lead to poor decision making and management inefficiency, this increases costs
- Solution: create new communication structures

2
...


Low employee moral (alienation):
- Difficult to directly involve every worker and give them a sense of purpose and achievement
...

- Firms with flow line production also experience alienation due to boring and repetitive tasks
- Solutions; delegate tasks/decision making power, job enrichment, and split up business
...

Diseconomies gradually begin to take over

Significance of small/micro businesses
They are important for the economy because they…
1
...

3
...

5
...


Created many job opportunities
Are often run by dynamic entrepreneurs w/ new ideas for customers (increases consumer choice)
Create competition for larger businesses – this avoids exploitation
Often supply specialist goods/services to important industries (e
...
car parts to manufacturers)
Every firm begins small
...
), meaning they can charge lower prices
...

2
...

4
...


Owners objectives
Capital available
Size of the market
Number of competitors (more=smaller shares each)
Scope for economies of scale

GROWTH
Reasons for growth:
1
...

3
...

5
...

EXTERNAL GROWTH: business expansion achieved by means of merging with or taking over another
business (either from the same industry or a different one) – this is also known as integration
MERGER: an agreement by shareholders and managers of two businesses to bring both firms together
under a common board of directors with shareholders in both businesses owning shares in the newly
merged business
TAKEOVER: when a company buys over 50% of the shares of another company and becomes the
controlling owner (a
...
a acquisition)

TYPES OF INTEGRATION
HORIZONTAL INTEGRATION: integration with a firm in the same industry and at the same stage of
production
FORWARD VERTICAL INTEGRATION: integration with a business in the same industry but different stage
of production and is a customer of the existing business
BACKWARD VERTICAL INTEGRATION: integration with a business in the same industry but different
stage of production but is a supplier of the existing business
CONGLOMERATE INTEGRATION: integration with a business in a different and unrelated industry

TYPE OF INTEGRATION

ADVANTAGES

HORIZONTAL
INTEGRATION

o
o
o

o

FORWARD VERTICAL
INTEGRATION

o

o

BACKWARD VERTICAL
INTEGRATION

o

o

o

CONGLOMERATE
INTEGRATION

o

o

o

DISADVANTAGES
Rationalization may bring bad
publicity 

May lead to monopoly 

investigation if the combined
business exceeds certain size
limits 


Eliminates one competitor 

Possible economies of scale


Scope for rationalizing
production, e
...

concentrating output on one
site instead of two 

Increased power over
suppliers 


o

o

Can create unemployment due
to rationalization

Business is able to control
the promotion and pricing of
its own products 

Secures an outlet for the
firm’s products – may now
exclude competitors’
products

o

Gives control over quality,
price and delivery times
of
supplies 

Encourages joint research
and development into
improved quality of supplies
of components 

Business may control
supplies of materials 


o

Diversifies the business away
from its original industry and
markets 

This should spread risk and
may take the business into a
faster-growing market
No need for rationalization

o

o

o

o

o

STAKEHOLDER IMPACT
o
o

Consumers have less choice 

Workers may lose job security as a result of
rationalization 


Consumers
may suspect
uncompetitive activity and
react negatively 

Lack of experience in this
sector of
the industry –
a
successful manufacturer does
not necessarily make a good
retailer

o

Workers may have greater job security
because the business has secure outlets 

There may be more varied career
opportunities 

Consumers may resent lack of competition in
the retail outlet because of the withdrawal of
competitor products 


May lack experience of
managing a supplying
company – a successful steel
producer will not necessarily
make a good manager of a
coal mine 

Supplying business may
become complacent having a
guaranteed customer

o

Lack of management
experience in the acquired
business sector 

There could be a lack of clear
focus and direction now that
the business is spread across
more than one industry

o
o

o
o

o
o

Possibility of greater career opportunities for
workers 

Consumers may obtain improved quality and
more innovative products 

Control over supplies to competitors may
limit competition and choice for consumers

Greater career opportunities for workers 

More job security because risks are spread
across more than one industry 


JOINT VENTURES
JOINT VENTURE: two or more businesses agree to work closely together on a particular project and
create a separate business division to do so
...
Shared costs and risks
2
...
Each business may have markets in different countries – this can be exploited with the new
product more effectively than going at it alone
Risks include…
1
...
Errors/mistakes lead to blaming and conflict
3
...
With a university – finance provided by the business to allow new specialist training courses that

will increase the supply of suitable staff for the firm
...
With a supplier – join forces to design/produce components/materials to be used in a new range
of products
...
With a competitor – reduces risk of entering new market that neither firm operates in (may be
against the law of the country whose market is being entered)

FRANCHISING

FRANCHISE: a business that uses the name, logo and trading systems of an existing, successful and wellestablished business
Franchisee…
ADVANTAGES

DISADVANTAGES

o

o

o
o
o

o

Reduced chance of failure – due to use of established
brand and products
Training and advice offered by franchisor
National advertising paid for by franchisor
Supplies obtained from established/quality-checked
suppliers
Franchisor agrees not to open another branch in the
local area

o
o
o

o

Percentage of profits/sales revenue is paid to franchisor
annually
Expensive initial franchise license fee
Local promotions paid for by franchisee
No choice over which supplier is used
Strict pricing and layout rules – reduces owners’ control
over business

GLOBALISATION

GLOBALISATION: the growing integration of countries through increased freedom of global movement
of goods, capital and people
FREE TRADE: no restrictions or trade barriers exist that might prevent or limit trade between countries
PROTECTIONISM: using barriers to free trade, such as tariffs and quotas, to protect a country’s own
domestic industries

Benefits of globalisation and free trade between nations include…
1
...
Imports of raw material allow increased rates of industrialization in developing countries
3
...
Increased specialization in products the businesses are skilled at making because they can
import those that they are less efficient in producing
5
...
Improved living standards for all consumers in countries trading since products can be bought
more cheaply
7
...
Increased foreign investment for developed/ing countries due to movements of international
capita

MULTINATIONAL CORPORATIONS
MULTINATIONAL CORPORATIONS: business organizations that have their headquarters in one country,
but with operating branches, factories and assembly plants in other countries

Reasons for becoming a multinational include…
1
...
Lowered costs of production
- Lowered transport costs of finished goods
- Lowered labour rates – lower demand for labour in developing countries
- Cheaper rent due to lower demand for commercial property
...
Avoid import restrictions

4
...
Poor communication links with headquarters may be a problem
2
...
Consumer tastes and preferences vary in different countries/cultures/religions etc
...
Co-ordination with other plants will need careful monitoring to ensure things like conflicted
policies aren’t adopted
5
...
Costly to set up a new factory/branch/plan

Impacts on the ‘host’ country of multinationals…

POSITIVE IMPACTS
o
o
o
o
o
o
o

The investment will bring in foreign currency and, if
output from the plant is exported, further foreign
exchange can be earned
...

Local firms can supply services and components to the
new factory – this generates additional jobs and
incomes
...
7
ORGANISATIONAL PLANNING TOOLS
ORGANISATIOINAL PLANNING: process of identifying an organization’s immediate and long-term
objectives, and formulating and monitoring specific strategies to achieve them; it also involves
employee and resource allocation to allow for the effective completion of projects
PROJECT: a specific and temporary activity with a start and end date, clear goals, defined responsibilities
and a budget

The basic elements of a project are…
1
...

3
...


Resources – people/equipment/materials
Time – duration of project by timing elements
Money – kept to budget and aim for specific budget
Scope – overall size/scale

PROJECT MANAGEMENT: using modern management techniques to plan, carry out and complete
projects from start to finish in order to achieve preset targets of quality, time and cost

FISHBONE DIAGRAMS
FISHBONE DIAGRAM: A visual identification of many potential causes of a problem
Potential causes include…
1
...

3
...

5
...


Methods
Machines
Manpower
Materials
Measurement
Mother nature (environment)

Stages in fishbone process include…
1
...

3
...


Agreed problem statement written in the center
Identify main categories of the problem
Identify reasons behind problems occurring under said categories
Analyze findings

ADVANTAGES
o
o
o
o

DISADVANTAGES

Simple and understandable approach
Aids discussion and resolutions of business problems
May encourage employee participation
Helps build a system of performance improvements –
this resolves existing/potential problems

o
o

May be too simple (relatively)
Difficult to show interrelated nature of business
problems – can’t be effectively used to illustrate
complex problems

DECISION TREES
DECISION TREE: a diagram that sets out the options connected with a decision and the outcomes and
economic returns that may result (considers value of available options and likeliness of their occurrence)
Diagram represents…
1
...

3
...


Options open to managers
Varied possible outcomes resulting from options
Chance of occurrence
Economic returns of these outcomes

Contains following features… ALWAYS INCLUDE KEY
1
...

3
...

5
...


Constructed left to right
Each branch represents option + range of consequences/outcomes and chance they occur
Square = decision points/nodes
Circle = chance node (range of outcomes that may result from a decision)
Probabilities shown alongside possible outcomes
Economic returns (i
...
expected financial gains/losses)

EXPECTED VALUE: the likely financial result of an outcome obtained by multiplying the probability of an
event occurring by the forecast economic return if it does occur
NET VALUE: expected value of all nodes of a decision minus the cost of the decision

ADVANTAGES
o
o
o

Allows visual representation of decisions and possible
outcomes
Forces managers to consider both financial outcomes of a
decision and the chances of success/failure
Calculation of expected monetary values is a good starting
point for the quantitative assessment of different options

DISADVANTAGES
o
o
o

Data used may be inaccurate, outcomes could be based on
guestimates – this makes it nothing more than just a guide
Probability of events occurring may differ due to
circumstantial change, so relying on past data can be
inaccurate
cannot replace either the consideration of risk or the impact
of qualitative factors on a decision

FORCE-FIELD ANALYSIS
FORCE-FIELD ANALYSIS: an analytical process used to map the opposing forces within an environment
(e
...
business) where change is taking place

Steps are…
1
...
list forces for change and forces against change in two different columns on either side
3
...

2
...

4
...


what main activities are
when each activity begins/ends
how long each is scheduled to last
where activities overlap
start and end date of entire project (can be used to inform customers)

creating a Gantt chart…
1
...
identify relationships between them
3
...
Full complexity is not depicted because
its main focus is only time

---