IB Business Unit 1

Adding Value

Adding Value

The process of enhancing a product or service to increase its worth or appeal to customers, often through improvements in quality, features, or functionality.

Businesses

Entities that engage in commercial activities and aim to generate profit by providing goods or services to customers.

Consumers

The ones who actually use a product.

Customers

The ones who purchase the product, not necessarily using it.

Entrepreneurs

Individuals who start and manage their own businesses, taking on financial risks in order to pursue opportunities and create innovative solutions in the market. They are driven by a strong desire for independence, success, and the ability to make a positive impact on society.

Entrepreneurship

The collective knowledge and experiences of entrepreneurs, and the process of starting and running one’s own business.

Goods

Specific items that one can physically purchase/use.

Needs

The basic necessities that a person needs to survive.

Primary Sector

Business involved in the cultivation/extraction of natural resources.

Secondary Sector

Businesses that are involved with the production and manufacturing of certain products.

Tertiary Sector

Businesses involved with the provision of services.

Quaternary Sector

A sub-category of the Tertiary Sector that offers knowledge based services to the general public.

Services

Intangible products sold to costumers.

Production

The process of creating goods and/or services, adding value in the process.

Wants

specific things one would like to have.

Inputs

• Capital

• enterprise

• land

• labour

Processes

*add Value to item

• H.R

• Finance

• marketing

• Operations management

Outputs

• the Good or Service

Functional Areas of Business

• H.R, responsible for workforce

• Finance, responsible for gaining capital/and staying in legal boundaries

• marketing, responsible for finding what the costumers are looking for and how to sell it

• operations management, responsible for overlooking workforce operations/practices

4 P’s + 3 P’s of Marketing (7 P’s)

1. product

2. price

3. place

4. promotion

5. people

6. processes

7. physical evidence

Chain of Production

1. extraction

2. Manufacturing

3. services

4. consumers

Extraction

Primary Sector’s purpose, obtain raw materials

Manufacturing

Secondary Sector, convert raw materials into a product

Services

Tertiary, or Quaternary

Cooperatives

for-profit social enterprises that are run by their own members, employees, and/or customers of a certain status in the company that work towards the business goal.

Company/corporation

a limited liability business that is owned by shareholders

Incorporation

There is a difference between the owners of a business and the company itself

Initial Public Offering (IPO)

When a business sells its stocks for the first time on the stock exchange.

limited liability

a restriction on the amount of money that an owner can lose if the business claims bankruptcy.

non-governmental organizations (NGO’s)

private sector not for profit social enterprises that operate for the benefit of others.

partnerships

private sector businesses owned by an entity of 2 or more people

private sector

part of the economy run by private individuals and businesses rather than the government

privately held company

a business owned by shareholders, with limited liability but who shares can’t be bought by or sold to the general public. shareholders have to be approved by the business owners.

public sector

owned by the government

sole trader

self-employed person who runs a business on their own

unlimited liability

you can lose any/everything

deed of partnership

the legal documents that are signed claiming you are in a partnership with another

social enterprises

revenue generating companies with social objectives

• make a surplus

• use the surplus to benefit a part of society (TOMs)

Hierarchy of objectives

provide businesses w/ a targeted direction for the future

vision/mission/strategies/tactics

Strategic Objectives

• market standing: how much presence the company has in the industry

• image: consumer beliefs and conceptions of a firm

• market share: firm’s revenue as a percentage of all that’s made in the industry.

Corporate social responsibility (CSR)

the conscientious consideration of ethical and environmental practice related to business activity.

Stakeholders

anyone who has a direct interest in your company!

internal and external

internal stakeholders

members of the firm. employees, managers/directors, shareholders (those with stocks)

external stakeholders

anyone has an interest in a company’s succession, good or bad! Customers, Suppliers, financiers (banks), pressure groups, competitors

Economies of scale

when the avg. cost of production decreases as the organization increases the size of its operations

Diseconomies of scale

when a company becomes to large it has production inefficiencies and avg. costs increase.

internal economies of scale

inside the firm/within the firms control

1. technical, machinery and mass production

2. financial, borrow large sums from banks with lower interests

3. managerial, experienced managers

4. specialization, specialized labour

5. marketing, sell items in bulk, advertising

6. purchasing, buy resources in bulk, some discounts

7. risk-bearing, some risks are covered by other areas of benefit

external economies of scale

the entire industry

1. technological progress, innovation

2. improved transportation networks, better infrastructure=better for economy

3. abundance of skill, training facilities and education

4. regional specialization, certain countries are known for certain specialites

external diseconomies of scale

1. high rent

2. local market conditions

3. traffic

4. context specific problems

Internal growth

a business grows by using its own capabilities and resources

external growth

growth through dealing with the outside organizations

WHY Grow?

economies of scale, lower prices, brand recognition, customer loyalty

WHY stay small?

cost control, more control, financial relief, government aid, flexibility

external growth methods

• mergers and acquisitions (m & a’s)\

  merger= 2 firms combine

  acquisitions= 1 company buys another with agreement of board

• Takeovers (hostile takeovers)= company buys another without the agreement of the boards

• Joint Ventures (JV’s)= 2 companies split costs and risks, for a specific amount of time

• Strategic alliances (SA’s)= 2 or more firms cooperate in a business venture for mutual benefit

• Franchising= person/business gets a license to trade using another firm’s name

  Franchisor, sells

  Franchisee, buys

Multinational company (MNC)

an organization operating in 2 or more countries

Host country

the countries that let a multinational company work there

Gross domestic product (GDP)

the value of a country’s annual output or national income

protectionist policies

measures imposed by a country to reduce the competitiveness of imports (tariffs)