Unit 1 business IB

1.4 Stakeholders

Internal stakeholders

are individuals or groups that work within the business.

External stakeholders

are individuals or groups that are outside the business.

Shareholders (Internal Stakeholder)

Owners of private and public limited companies, interested in the profits and longevity of the business.

CEO or Managing Director (Internal Stakeholder)

focuses on coordinating the business strategy and delivering profits and returns that satisfy the shareholders.

Senior Managers (Internal Stakeholder)

focus on the strategic objectives for their functional areas.

Middle Managers (Internal Stakeholder)

focus on the tactical objectives for their functional areas.

Foremen and supervisors (Internal Stakeholder)

focus on organising tactical objectives and formulating operational objectives.

Employees (Internal Stakeholder)

focus on protecting their rights and working conditions.

Government (External Stakeholder)

focuses on how the business operates in the business environment.

Suppliers (External Stakeholder)

focus on maintaining a stable relationship

Customers (External Stakeholder)

focus on the best products that meet their needs.

Local Community

community focus on the impact of the business in the local area.

Financiers (External Stakeholder)

focus on returns on their investments.

Pressure Groups (External Stakeholder)

focus on how the business has an impact on their area of concern.

Media (External Stakeholder)

focuses on the impact of the business in terms of news stories.

Stakeholder Conflict

groups of people with a common interest in the same business, but one stakeholder group achieving their objectives, prevents another stakeholder group from achieving their objectives.

Stakeholder Analysis

The process of assessing the business's stakeholder groups, their interest in the business and how important they are to the business.

Stakeholder Mapping

A type of stakeholder analysis where stakeholders are placed on a grid based on their characteristics.

The Power-Interest Model

a model that characterises stakeholders by their level of power and their level of interest in the business. THis is then used to advise the business on how to treat these stakeholders.

1.5 Growth and Evolution

STEEPLE analysis

A method of assessing the external environment based on 7 separate factors.

Economies of scale

the decrease in per unit production cost as output or activity increases.

Diseconomies of scale

the increase in per unit production cost as output or activity increases.

Cost of production per unit

efficiency is measured in terms of this.

Fixed costs

are costs that do not change as production changes.

Variable costs

are costs that vary as production changes.

Average cost

Total cost of production of a product, including both fixed and variable costs, divided by the total number of units produced.

Total cost per unit

The total variable cost plus the fixed cost.

Internal Economies of Scale

The factors within a business that contribute to a reduction in cost per unit as the business grows.

Technical economies of scale

bigger units of production can reduce costs because of the law of variable proportions - the increase in variable costs spread against a set of fixed costs.

Managerial economies of scale

bigger business can afford to have managers specialising in one job as opposed to trying to do everything.

Financial economies of scale

bigger businesses are less risky than smaller businesses.

Marketing economies of scale

bigger businesses can run more effective marketing campaigns

Purchasing economies of scale

Big businesses can gain discounts by bulk buying -buying in large quantities.

Risk bearing economies of scale

big businesses can afford to produce a bigger range of products and in doing so spread the risk of one product failing - hedging their bets.

External economies of scale

costs savings or benefits that the business experiences because an external organisation has expanded.

Consumers (external economies of scale)

As infrastructure is developed this allows businesses to attract and be exposed to more customers. For example, one shop being a part of a larger shopping centre that attracts many customers.

Employees (external economies of scale)

labour concentrations occur when some cities or geographical areas concentrate on certain industries or sectors. Individual businesses located in those areas and operating in the industry that has the concentration can often benefit from lower recruiting and training costs.

Internal diseconomies of scale

inefficiencies that the businesses itself can make. Technical diseconomies of scale, A container ship can be too big to berth in a harbour, an aeroplane can be too big to land at smaller airports, or a lorry may be too large to drive on minor roads.

Managerial diseconomies of scale

businesses may have "over-specialized" managers who cannot work outside their area of expertise for everyone's benefit.

Financial diseconomies of scale

sometimes big businesses with large amounts of "surplus" cash make poor investments. Poor decisions occur because the businesses do not think through the consequences of investment choices.

Marketing diseconomies of scale

As businesses become more well known they attract more media attention, small mistakes can become well publicised and affect the business's reputation in a negative way.

Purchasing diseconomies of scale

large businesses often buy too much stock, which can be costly if the cost of the capital funds used to purchase the stock is greater than the cost savings from buying in large quantities.

Risk bearing diseconomies of scale

Businesses acquire other companies in order to broaden their product range or markets and therefore reduce risk, but sometimes these newly acquired businesses can fail quickly, meaning the investment is lost before creating any benefit.

External diseconomies of scale

When the growth of an external business/organisation leads to increased costs for the business.

Employees (external diseconomies of scale)

If one geographic region becomes too concentrated on one economic activity, typically a shortage of skilled workers in the industry will occur. For an individual business, this relative shortage of skilled workers means that the business will have to pay higher wages than before to attract and retain skilled workers.

Reasons for businesses to grow

Survival, Economies of scale, Higher leader status, Increased market share.

Reasons for businesses to stay small

Greater focus, Greater prestige, Greater motivation, Competitive advantage, Less competition.

Internal growth

sometimes referred to as organic growth, this occurs when a business grows by relying on its own resources and capabilities: investments in new products, or new sales channels, or more stores, etc to increase sales.

External growth

occurs when a business expands with the aid of resources and capabilities not developed internally by the company itself. Instead, the company obtains these new resources and capabilities by acquiring another company or forming some type of relationship, like a joint venture, with another organisation.

Mergers and acquisitions (takeovers)

type of expansion occurs when two business become integrated, either by joining together and forming a bigger combined business

Horizontal integration

occurs when the two businesses being integrated are not merely in the same broad industry, but are actually in the same line of business and are in the same chain of production.

Vertical integration

occurs when one business integrates with another at a different stage in the chain of production, or when a business begins operations in an earlier stage through internal growth.

Backward vertical integration

it is when a businesses becomes involved in an earlier stage in the chain of production

Forward vertical integration

occurs when one business integrates further forward in the chain of production.

Conglomeration

occurs when two businesses in unrelated lines of business integrate.

Diversification

a type of integration that occurs when conglomeration happens.

Joint Ventures

an organisation created, owned and operated by two or more other organisations. The joint venture is legally distinct from the organisations that created it.

Strategic alliances

when two or more businesses cooperate in some legal way that enhances the value for all parties. Members of the alliance retain their independence. A strategic alliance is less binding than a joint venture, as no new organisation is created.

Franchises

another form of external growth and is a method of distributing products or services that was made by the franchisor by franchisees.

Franchisee

businesses that buy the right to offer the concept and sell the product of service. They have to be consistent with the original business concept developed by the franchisor.

Franchisor

an original business that developed the business concept and product or services.

Advantages to the franchisee

- products exist and are usually well known - the format for selling the product is established - the set-up costs are reduced - has a secure supply of stock - the franchisor can provide legal, financial, managerial and technical help.

Disadvantages to the franchisee

- unlimited liability for the franchise - has to pay royalties to the franchisor - has no control over what to sell - has no control over supplies.

Advantages to the franchisor

- gains quick access to wider markets - makes use of local knowledge and expertise - does not assume the risks and liabilities of running the franchise - gains more profits and sign-up fees - makes all of the global decisions.

Disadvantages to the franchisor

- loses some control in the day-to-day running of the business - can see its image suffer if a franchise fails or does not perform properly.

1.6 Multinational Companies (MNCs)

Globalisation

the process in which the world's regional economies are becoming one integrated global unit.

Multinational Company

a company that operates in two or more countries. Generally very large companies, and sometimes referred to as multinational enterprises.

Impact of globalisation on businesses

- increased competition - greater brand awareness - skills transfer - closer collaboration.

Reasons for growth of MNCs

improved communication - dismantling of trade barriers - deregulation of the world's financial markets - increasing economic and political power of the multinational companies.

Positive impact of MNCs on host country

- economic growth - new ideas - skill transfer - greater choice of products - short-term infrastructure projects.

Negative impact of MNCs on host country

- Profits being repatriated - loss of cultural identity - brain drain - Loss of market share - short-term plans.

Technical diseconomies of scale

A container ship can be too big to berth in a harbour, an aeroplane can be too big to land at smaller airports, or a lorry may be too large to drive on minor roads.