IB Business Management - Unit 1

What is a business?

Meets the needs and wants of stakeholders by producing the goods and services the people need and want

How does business meet the costumers wants and needs?

Its buys and utilizes inputs (factors of production). Capital, land, labour, enterprise.

Stakeholders

Anyone who has an interest in the business (customers, managers, employees, owners etc.)

Business functions

Marketing, production, accounting, human resources, objectives, and handling external influences

Primary sector

Extraction of raw materials (mining forestry, farming, etc.)

Secondary sector

Processing and manufacturing raw mateirals into finished goods (Automobile production, energy utilities)

Tertiary sector

Basic services that do not require a highly educated/skill workforce (restaurants, cafes, cinemas, hotels, taxis, etc.)

Quaternary sector

Requires high skill and specialist knowledge (high value added), relies on technology, finance and communications (doctors, lawyers, bankers and etc.)

Challenges of starting a new business

• lack of finance/lack of capital start up

• too many competitors with loyal customers

• inexperience

• no established customer base

• little ability to benefit from economics of scale

• poor location of business

Opportunities of starting a new business

GETCASH

• Growth

• Earnings

• Transference

• Challenge

• Autonomy

• Security

• Hobbies

Public sector

• Organisations controlled by the government

• Objective is to service the public not to earn profit

• E.g. health and education services, defense, law and order

Private sector

• Businesses owned and controlled by private individuals or groups

• Objective is to earn profit

Affordability

Services that are offered at prices that are cheaper

Reasons to start a business

Entrepreneurial, work for yourself, control, finace, the dream.

Sole trader

Owned and controlled by one person, but can employ other staff.

Advantages of sole traders

• Easy to set up

• Flexibility

• Keep 100% profits after income tax

• Autonomy in decision making (therefore quicker)

Disadvantages of sole traders

• Unlimited liability

• High workload

• Limited start-up finance

Partnerships

Owned and financed by 2-20 people, sleeping partners are an option

Advantages of partnerships

• Greater access to capital

• Shared responsibility

• Easy to set up

• Division of labour

Disadvantages of partnerships

• Unlimited liability

• More potential conflict

• Legally inseparable from the business

• Profit sharing

Private limited company

• Owned by between 1 and 50 shareholders

• Must have a Board of Directors

• Company shares are NOT sold to the public, only sold to friends/family of the founders

• Shareholders have limited liability

Public limited company

• Owned by minimum of 2 but no maximum number of shareholders, but Board of Directors are in charge of operating it

• Shares are sold to the public

• Limited liability

Sleeping partners

People who do not take actively part in running the partnership but have a financial stake in it.

For profit social enterprises

Businesses that aim to achieve a social or environmental mission, while also generating profit (e.g. a cafe run by people with down syndrome)

Co-operatives

• Owned and ran by their members (employees)

• Democracy (all employees vote and contribute to decision making)

• All employees share profits

• Bonus’s at the end of the year (high staff motivation)

Public Private Partnerships

Collaborations between the government and a private sector to provide certain goods or services. (e.g. Hong Kong Disneyland, 49% owned by HK Gov, 51% owned by Disney)

Non-governmental organisations (NGOs) (Charities)

Operate for the benefit of others rather than primarily aiming to earn profit

Vision Statement

Outlines where the organisation wants to be in the future

Mission Statement

Simple declaration of the purpose of the organisation and its core values

Goals

Specific things that must be achieved to fulfill the mission.

Objectives

Set out what needs to be done in order to achieve the goal.

Strategic objectives

Medium term objectives (1-5 years) that businesses will try to achieve

Tactical objectives

Short term objectives (12 months or less) that guide a business day by day

Ethical objectives

Moral guidelines for decision making

Corporate Social Responsibility (CSR)

Consideration of ethical and environmental issues relating to business activity

Economies of scale

The reduction in average unit costs as the scale of production rises

Internal economies of scale

• Purchasing economies (larger firms are likely to get better rates when buying raw materials than smaller firms in bulk)

• Financial

• Managerial

• Specialisation

• Technical

• Risk-bearing

• Marketing economies (selling in bulk reduces admin/transaction costs)

External economies of scale

• Technological progress

• Improved transportation networks

• Skilled labour

Internal diseconomies of scale (when average costs increases)

• Poor communication

• Low morale and low efficiency

• Bureaucracy

• Difficulty to control and coordinate

Methods of external growth

• A merger

• An acquisition

• A takeover

A merger

When two companies of equal size and power combine together to form a single company. It is done by an agreement

An acquisition

Similar to a merger but it is where two companies become one company, and ending up with a larger and generally more powerful company. It is done by an agreement.

A takeover

It is an acquitsition, but an acquisition that the target company did not want. The target company has to purchase or take control over 50% entity then they can take control of the company. This is the only one not done by a friendly agreement.

Horizontal Integration

When one business merges with another business that is on the same level of the supply chain

Vertical intergration

When a company takes over one or more other companies at different levels within the supply chain

Lateral integration

When a business merges with another business that is on the same level and same industry but not competing businesses/competitors

Joint ventures (JV’s)

When two or more businesses share resources to start an entirely new business (e.g. Google and Nasa)

Franchise

A form of agreement by a franchisee (a small entrepreuner) buys the license of a famous brand name from the franchiser

Strategic Alliances

Two companies work together but no new legal entity is created (Similar to a JV)

Multinational Organisations

An organisation that operates in two or more countries, usually with its head office based in the home country