Business in Contemporary Society v4

8/14/2019 Business in Contemporary Society v4

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Today Needs and wants Business activity Business cycle Goods and services

Competition Factors of production


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Needs and Wants Needs a need is something

essential to our lives: food, water,

shelter, clothing

Wants a want is an additional

luxury that makes life pleasurable


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Business Activity Business activity is any activity

which provides us with goods and

services

A countrys wealth is measured by

how many goods and services itproduces

Q. How is a nationswealth measured?


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Business Cycle

BusinessCycle

Businessprovidesgoods/services

Consumer

buygoods/services

Wealth forcompanies andemployees

Consumershavemoney to

spend fromwa es

Needs&

Wants


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Goods and Services Goods are tangible, things we can see and

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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Competition Firms are in constant competition with each

other, and indeed how they fare is affecting

by suppliers, buyers and even the threat ofboth new firms entering their market, andthe threat of substitute goods.

Michael Porter called this the Five Forces


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Factors of Production In order to produce goods and

services, businesses need to use

resources LAND LABOUR CAPITAL ENTERPRISE


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Factors of Production Land natural resources extracted from

Earth. Can be renewable or non-

renewable Labour physical and mental effort of

people in organisations Capital man-made resources, such as

buildings, machines, tools Enterprise bringing together the other

three factors of production


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Identify a local business

organisation and describeeach of the factors ofproduction it uses in order to

operate


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Recap Needs and wants Business activity Business cycle Goods and services

Competition Factors of production


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Today Entrepreneurs Role of entrepreneur Entrepreneurs and franchising Combining factors of production

Innovation and risk taking


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Entrepreneurs A person who takes

an idea and throughability and vision

turns it into a goodor service.

Richard Branson,

left, is Britainsmost famousentrepreneur


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Entrepreneur Task1. Define what is an entrepreneur.

2. Identify 4 entrepreneurs and the

business they were involved with.3. Using the internet, write a short

biography of the 4 entrepreneurs.

4. What skills or personality traits do youthink entrepreneurs have?

5. Describe the role of the entrepreneur insetting up a business.


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1. Define what is anentrepreneur

A a person who starts a businessfrom their own idea with the

intention of making a profit. Theperson who brings together thefactors of production.


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Questions 2 & 3

Tell the class about theentrepreneurs you researched.

4 Wh t kill lit


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4. What skills or personalitytraits do you think

entrepreneurs have? Entrepreneurs display creativity,

innovation, imagination and are risk-takers. Entrepreneurs normally areassociated with SMEs (Small to MediumEnterprises), however as we have seen

they can operate in large firms too.

5 D ib th l f th


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5. Describe the role of theentrepreneur in setting up abusiness

Entrepreneurs develop the business idea. They are not always theinventor (the originator of the product/service), but are innovative.

They organise the resources. They make the decisions as to thelocation of the premises, method of production, product design,prices, wages. As the firm grows decisions may be passed down toothers as Richard Branson does.

Arrange for the financing. Entrepreneurs may put personal moneyin, but they also find backers. The central business idea and thebusiness plan are central to receiving funding.

They are the risk-takers. If it goes wrong it is they who suffer. AsJohn DeLorean did! He used personal AND Government money to fundDMC, but when it all went wrong he went bankrupt!


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Role of Entrepreneur Identifying business opportunities Franchising Combining Factors of Production Innovation and Risk Taking


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Identify Business

Opportunities Look for a gap in the market

Examples: McDonalds Home Delivery in

Clydebank? Virgin Galactic MJM


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Entrepreneurs and

Franchising In order to minimise risks, many

young entrepreneurs have taken to

using franchises as a means ofstarting up a business.


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Combining Factors of

Production The Entrepreneur brings together Land, Labour

and Capital.

Lets look at Richard Branson at Virgin: He would buy or rent the buildings/property

(LAND)

He would hire the staff (LABOUR)

He would raise the money to start the venture aswell as buy machinery/equipment (CAPITAL).


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Innovation and Risk Taking Entrepreneurs do not invent but innovate. Henry Ford did not invent the automobile but

through different innovations such as theassembly line and mass production he helpedpopularise car use and make it affordable forcustomers to buy

Risks involved are usually to do with uncertainty

and money. No-one knows for sure if a newventure will be successful. The entrepreneurcould go bust like John DeLorean


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DeLorean Car & Sinclair

C5

The DeLorean car bankrupted its owner; the C5 wasalso a massive flop and ruined Sir Clive Sinclairsreputation.


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Recap Entrepreneurs Role of entrepreneur Entrepreneurs and franchising Combining factors of production

Innovation and risk taking


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Today IPO Diagram Sectors of Activity De-industrialisation


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IPO Diagram

Input Process Output

Raw materials workers FinishedNatural resources machinery goods


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Create an IPO diagram for

the following:

a) the schoolb) a football clubc) computer firm


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Sectors of Industrial

Activity Primary Sector businesses involved in

exploiting or extracting natural

resources (mining, fishing, farming) Secondary Sector businesses involved

in manufacturing and construction.Includes utilities.

Tertiary Sector Businesses involved inproviding services such as banking,tourism, security

a) For each of the sectors of


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a) For each of the sectors ofindustry identify 3 local

businesses that operate inthat sector.

b) Use symbols/images todraw a diagram of thebusiness activity sectors, andplace the businesses in theproper sector


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De-industrialisation Economies begin in the primary sector

and as it grows moves through eachsector.

Reasons for this can be: Changes in demand Increased overseas competition

Lack of investment Restrictive government policies


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Explain why there has been agrowth in employment in call

centres in Scotland, andstate the reasons why it isimportant that Scotland

continues to attract thesejobs


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Recap IPO Diagram Sectors of Activity De-industrialisation


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Today Sole traders Partnerships Private limited companies plcs


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Types of Ownership Sole Trader Partnerships Private Limited Co. Public Limited Co.

Franchises Co-operatives Charities


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Sole Trader One man/woman business Sole Trader owns business. Owner and

business are the same Owner provides own capital (savings &

borrowings) Profits go to the owner (but responsible for

losses) Owner controls business, all decisions are

theirs


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Sole Trader +/- Easy to set up Can make decisions

quickly Personal attention to

business Profits are not shared

Can cater for local needs Business affairs keptprivate

Limited capital Unlimited liability

Commitment (longhours, every day)

New ideas may be

limited


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Partnerships A business owned by several people 2-20 Deed of Partnership contract dealing with share of

profits, roles and duties, capital contributed,

dispute procedures Owned jointly but not always equally Partnership is an extension of sole trader Capital provided by partners

Profit goes to partners, not always equally All partners entitled to participate in management

(unless silent partners)


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Partnership +/- More capital Excessive hours

can be cut down More ideas may begenerated

Specialisation can

occur Limited

partnerships

Actions of onepartner binds all

More discussionand consultation Limitation on

number of partners

Unlimited liability Partnership ends if

a partner dies


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Private Limited Companies Organisation owned by a group of individuals Memorandum/Articles of Association

Owned by Shareholders (usually family) whosemain function is to elect Board of Directors Money raised by share issue or borrowing Ordinary Shares & Preference Shares

Profit shared between shareholders orretained by company


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Private Ltd. +/- More capital Limited liability

Owner can retaincontrol

Company does not

die if owners die

Must be registeredwith Registrar ofCompanies

Harder to motivate &control workers

High set up costs(legal and

administrative) Diseconomies of scale


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Public Limited Companies Org. owned by a group of individuals, has plc after name Certificate of Incorporation approved by Registrar of

Companies Shareholders 2+. Shares sold on stock exchange.

Prospectus prepared to attract shareholders Capital raised by share issue or borrowing Profits shared between shareholders or retained by

company Board of Directors = Divorce of ownership and control


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plc +/- More capital Employ specialists

Limited liability Company does not

die if owners die

Shares can beissued throughstock exchange

Formation expensive Must publish accounts

May become too largeto manage effectively Decisions more

difficult to arrive at


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Recap Sole traders Partnerships Private limited companies plcs


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Today Franchise Co-operatives Charities Public Sector Organisations and

Corporations


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Franchise Business buys a license to operate a well

known firm

Owned by Franchisor Franchisee pays Franchisor to get

license as well as a royalty

Franchisees runs business onFranchisors guidelines


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Franchise +/- Franchisor provides a

lot of support;

training to startbusiness, equipment,materials, advice,brand name

Take over asuccessful, winningformula

Franchisee doesnthave complete

freedom May not agree with

decision placedupon you


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Co-operatives Organisations set up to benefit workers or

consumers Retail owned by workers and shoppers Producer owned by workers Retail every pound spent receives dividend or

voucher

Producer money comes from workers whoshare profits and share a salary Board of Directors (who may also be workers)


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Co-operatives +/- Less conflict

between workers

and managers Workers should be

more motivated

Difficult to growand find additional

capital New workers may

not be able to raisecapital needed to

join co-op


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Charities An organisation formed to raise money for

underprivileged people

Trustees Charities raise money through shops,donations and lottery money

Surplus after costs goes to the needy Board of Managers


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Charities +/- If charity has

status of

charitable trust itdoesnt pay tax Looks after less

privileged and the

environment

Less money may bedonated due to

introduction oflottery Relies on voluntary

workers who may

not be paid forwork


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Public Sector

Organisations Businesses set up by an Act of Parliament Government provides capital throughTreasury

Govt. appoints Chairman and BoardThey may be natural monopolies May be unattractive to private sector due

to enormous capital investment


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Public Corporations Reasons for being set-up:To avoid wasteful duplication and

confusionTo set up and run important non-

profitable services

To prevent exploitation of consumersTo protect jobs and key industries


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Identify as many differenttypes of business

organisations as you can thatare involved in producing a

new music CD


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Recap

Franchise Co-operatives Charities Public Sector Organisations and

Corporations


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Today

Privatisation Business Objectives Mission Statements


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Privatisation

The selling off of PublicCorporations to the private sector

Why Privatise?To improve efficiency by

introducing competition

Shareholders in Modern Society Privatisation raises huge monies

for government


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Business Objectives

Survival Growth and development Profit maximisation Social responsibility Providing a service

Objectives by Business


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Objectives by BusinessSector

Type ofBusiness

Aims/Objectives

Private Sector Survival, profit maximisation,increase returns toshareholders

VoluntarySector

Help others, maximise cashcollections, offer a service tocommunity

Public Sector Help people, improve quality of

service, cut costs, raise

Q i B i


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Questions a BusinessShould 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 companys raison dtre

Why Define Aims/Objectives? End result to work to

Goals motivate people

Keeps 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

the industry's most advancedinformation technologies


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Mission Statements

Qualities of Good Mission Statements:

Visionary

Clarify intentions and aspirations Describe current activities and

intended position

Key values of organisation Capable of being realised


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Recap

Privatisation Business Objectives Mission Statements


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Today

Stakeholders Identifying stakeholders Interest of stakeholders Influence of stakeholders


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Stakeholders

Stakeholders are people with a keyinterest in a business

Stakeholders effect businesses byexerting influence over decisions

Their influence depends on the

degree of their involvement orrelative interest in company


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Identifying Stakeholders

Owners Employees

Customers Banks Investors

Local government suppliers

Management Members

Committees Donors Taxpayers

Community shareholders

St k h ld


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StakeholderAims/Objectives

Owners = profits, dividends

Managers = promotion, job security

Employees = wages, working conditions, jobsecurity

Suppliers = regular orders, payment

Customers = low prices, high quality

Banks = 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 Stakeholders

Cabinet Backbenchers

Party MembersTrade Unions Media

General Public(Voters) Pressure GroupsTony Blair is

influenced by:


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Pressure Groups

A Pressure Group is an organisation formed bypeople with a common interest, who get

together in order to further that interest.

Eff i f P


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Effectiveness of PressureGroups depends on

Number of peopleinvolved/scale ofoperation

Amount of presscoverage they receive

Amount of publicsympathy they receive

How well organised thecampaign is

Amount of financeavailable forcampaign

Ability to lobbypoliticianssuccessfully

Strength ofindividualcampaigners


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Explain why it is importantfor managers to

communicate theirdecisions to stakeholders


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PEST Analysis


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PEST Analysis


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Political Factors

Tax policy Employment laws Environmental regulationsTrade restrictions and tariffs Political stability


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Economic Factors

Economic growth Interest rates Exchange rates Inflation rate Unemployment


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Social Factors

Demographics LifestylesTrends and fashions Attitudes Education levels Ethnic markets


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Technological Factors

ICT R&D activity Automation Rate of technological change E-commerce


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Competitive Factors

Product differentiation Price wars Profit margins Imitators Location


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Complete a PEST Analysis

grid for an industryselected by the teacher.


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Recap

PEST Analysis (External Analysis) Political Factors Economic Factors Social FactorsTechnological factors Competitive Factors


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Today

Sources of Finance

Internal

External


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Sources of Finance

Internal Sources of


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Internal Sources ofFinance

Retained Profits profit kept bycompany for future activities

Selling Assets money raised byselling off an asset no longer needed

Both are Short-term

External Sources of


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External Sources ofFinance

Long Term (10 years +) Issuing Shares capital raised by

selling shares Debentures a fixed interest long

term loan Loans borrowing money, repaid over

a time period with interest Mortgages a loan secured for

property

External Sources of


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Medium Term (1-10 years) Leasing renting equipment or

premises Hire Purchase acquiring an asset

on credit followed by fixed

payments. After last instalmentpurchaser owns asset. Loans

External Sources of


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Short Term (up to 1 year) Overdraft borrowing more money

than is available in bank accountTrade Credit businesses receive

goods first, then pay later

Factoring a specialist businesscollecting unpaid debts for a fee

Additional Sources of


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Additional Sources ofFinance

LEC ScottishEnterpriseRenfrewshire

Local authorities East RenfrewshireCouncil

GovernmentPartnerships Business Gateway

Grants and allowances Repayable Grants,Soft Loans, Subsidies

EU grants RegionalDevelopment Fund &Social Fund


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Recap

Sources of Finance

Internal

External


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Today

MergerTakeover

De-merger Divestment Horizontal integration Vertical integration Diversification


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Methods of Growth

Merger an agreement to bring two firmsunder one board of directors

Takeover when a firm buys over 50% ofanother firms share capital

De-merger when a firm is split into twoparts

Divestment selling off parts of businessno longer fitting long-term strategy


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Horizontal Integration

Occurs when a firm takes over ormerges with another firm at the

same stage of production.

+ =

Benefits of Horizontal
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Benefits of HorizontalIntegration

This can help eliminate competition

Can lead to increased market share

Allows for economies of scale Combined company becomes more strong

and secure

Acquisition of other companys assets


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Vertical Integration

Rubberplantation

Carshowroom

Forward

Backwar

d

Benefits of Vertical


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Benefits of VerticalIntegration

It reduces costs as there are nomiddlemen; more profits are kept

Company benefits from greatereconomies of scale

Processes can be linked easily

(supplies are guaranteed, retailsoutlets available for products to besold in)


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Diversification

Diversification is when businessesreduce risk by expanding the

number of goods/services theyprovide

Diversification Benefits


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Diversification Benefits(aka Conglomerate Integration)

Reduces risk of business failure (ifone part fails, there is another to

compensate!) Business becomes larger and more

financially secure

Firm acquires assets of the othercompany

State 3 factors that affect a business


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a) State 3 factors that affect a business

b) give an example for each factors of aPEST analysis

c) explain merger and demerger

d) list and explain 3 sources of finance

e) what is divestment?


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Recap

MergerTakeover

De-merger Divestment Horizontal integration Vertical integration Diversification


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Today

Multinationals Social Responsibility

Exxon Valdez


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Multinationals

What is a Multinational?

A company with HQ in one countrybut with bases, manufacturing orassembly plants in others

Why become a


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Why become aMultinational?

Companies may become Multinationals to:

increase market share

secure cheaper premises and labour to avoid tax or trade barriers

to take advantage of government grants


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Multinationals +/-

Provide jobs &income

Improve level ofexpertise of localworkers

Economies of Scale

Jobs may only below-level skills

Profits go back tohome country

Cut corners

May exert political

muscle


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Social Responsibility SR is about how companies manage

their business processes to produce anoverall positive impact on society - CSR

Major Concerns High Fossil fuel emissions

Global warming Exploitation of workers Safety of employees


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Social Responsibility

Levis Sweatshop workers EuroDisney US culture invades

France DDT pesticide banned in High

income countries, yet sold on to

low income nations


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Exxon Valdez Disaster 1989 Exxon Valdez

disaster in Alaska

11 million gallons of oilspilled over 1,500 mileshoreline

500,000 birds dead

4,500 otters dead

14 killer whales dead


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Aftermath

Clean-up cost $100 million 1994 fined $5 billion by US courts

Exxon Valdez synonymous withcorporate arrogance and shirkingof responsibility Alabama court

Consumer boycott: Exxon slippedfrom 1st to 3rd biggest oil company

1999 Exxon merged with Mobil

Has Exxon learned its


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lesson?

In 2002 ExxonMobil donated:

$2 million to US Education AllianceProgram

$100 million to Global Climate andEnergy Project


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Social Responsibility +/-

Customerperceivescompany in good

light

Financial cost


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Today

Multinationals Social Responsibility

Exxon Valdez


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For each of the followingexamples, identify whichwould be the best type of

business organisation to use.Justify your decision for each.A) firm of solicitors

B) window cleanerC) garage repair and sales

c o e o ow ngservices are provided by


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p ygovernment and are publicly

funded? Identify whetherthey are funded by Scottish

or UK government.A) university educationB) local bus serviceC) water supply

D) sheltered housingE) Letter postal service


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Identify 2 business

objectives of HBOS fromcase study on p. 30


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How do businessobjectives of an

organisation like the BBCdiffer from STV?

Documents

Business in Contemporary Society v4