Studied by 7 people
Business
The role of a business is to combine human, physical and financial resources to create goods and services, usually with the aim of making profit
Capital goods
Physical goods that are used in an industry to make other goods and services such as machines and equipment
Business Objectives
It may vary depending on the type of business and the situation is in
Profit
Increase added value
Growth
Survival
Service to the community
Business activity / Factors of production
Inputs - Resources that a business uses in the production process
Processes/Production - Turning the inputs into manufactured foods or the providing of services
Outputs - To outputs or provision of final goods or services
Examples of input resources
Raw materials
Human resources (labour)
Capital
Functions of a business
Human resources
Finance and accounts
Marketing
Operations
Human resources
Manages the workforce of the business
Deals with: workforce planning, recruitment, training, appraisal, dismissals and redundancies and outsourcing human resource strategies
Appraisal
A formal assessment or valuation
Redundancies
The state of being unemployed because there is no more work available
Finance and accounts
Manages the organisation’s money and assets
Deals with: reporting and recording financial records, abiding by legal requirements (e.g. tax), produces final accounts
Marketing
Identifies and satisfies the needs and wants of customers
In charge of ensuring that a business’ products sell
Deals with: market research, test marketing, advertising and branding
Operations
Converts raw materials and components into finished goods
For a service, it can be the process of giving that service
Deals with: research and development, delivery, stock management, etc
Business sectors
Primary
Secondary
Tertiary
Quaternary
Primary sector
The extraction and harvesting of natural materials which is regulated and protected by the government
Primary sector examples
Mining, agriculture, livestock, drilling etc
Secondary sector
Manufacturing and construction of products by transforming the raw materials produced in the primary sector
Economically developed countries tend to dominate this sector
Secondary sector examples
Clothing production, car manufacturing, etc
Tertiary sector
Provides service and retail to the general population
The selling of goods and products from the primary and secondary sectors and the sale of services and skills
Tertiary sector examples
Healthcare, transportation, sales, retail, maintenance, etc,
Quaternary sector
A subcategory of the tertiary sector
Intellectual and knowledge based services involving complex processing and handling of information
Quaternary sector examples
IT specialist, scientific research, consultancy, etc.
Sectoral Change
Primary → Secondary → Tertiary → Quaternary
The importance of each sector in countries economic structure changes over time
Industrialisation
The growing importance of the secondary sector manufacturing industries in developing countries
De-industrialisation
In developed economies the situation is reversed. These is a general decline in the importance of secondary sector activity and an increase in the tertiary sector.
Reasons for sectoral change
Higher household income
More leisure time
Greater focus on customer service
Increasing reliance on suppport service
Entrepreneur
An individual who sets up and manages a business, while taking on financial risks in doing so
Intrapreneur
an employee who is tasked with developing new and innovative ideas or projects within a business
Entrepreneur qualities/features
Founders/owners
Takes great risks
Rewarded with profit
Any failure leads to personal costs
Visionary
Responsibility for the work-force
Provides sufficient resources
Intrapreneur qualities/features
Employees of the business
Uses resources of the company
Risks may vary but less than entrepreneur
Rewarded with a paycheck
Failure is absorbed by the business
Innovative
Accountable to the owner
Dependent on other employees or the business
Reasons for starting up a business
Profit
Fame
Growth
Transfer and inheritance
Challenge
Autonomy
Security
Hobbies
Autonomy
A business is the freedom that managers provide their staff to make choices and accomplish specific goals
Factors to consider when starting up a business
Business idea
Sources of finance
Human resources
Enterprise
Fixed assets
Suppliers
Customers
Marketing
Legal issues
Market opportunities
Internal problems that a new business might face
Lack of finance
Cash of problems
Marketing problems
Poor location
Internal legalities
Production problems
High production costs
Workforce management problems
External problems that a new business might face
Competition in the area
Economic recession
External legalities
Terrorists
Politics or government
National calamities
Limited resources
Changes in the business/market environment
Elements of a business plan
Business
Product
Market
Finance
Personnel
Marketing
Business plan
Report detailing aims and objectives of a business
Planning tool that serves as a blueprint to address the issues of a start-up business
Meant for investors/banks to help them decide on whether to invest/approve loans
Public sector
Owned by the government
Provides essential goods and services that would be otherwise inefficiently provided by the private sector
Organisations which are wholly owned by the government are state-owned enterprises
Examples: electricity and water companies, public hospitals, etc
Private sector
Owned and controlled by private individuals
Can be owned by one person or by many
Aim to make profit
Examples: H&M, Walmart
Unincorporated businesses
Businesses where there is no legal distinction between the owner of the business and the business itself. everything is carried out in the name of the owners.
Types of unincorporated businesses
Sole trader
Partnerships
Types of incorporated businesses
Private limited companies
Public limited companies
Incorporated businesses
Businesses that have a seperate legal entity from their owners
Sole trader
An individual who runs and own their own business
Sole traders features
Unincorporated
Individual who owns a personal business
Completely owned and controlled by just one person
Responsible for success and failure
May work alone or employ others
Startup capital usually includes personal savings and borrowing
Simplest form of business
Sole trader advantages
Fewer legal formalities
Profit goes directly to owner
Autonomy
Personalised service
Privacy of financial accounts
Setup costs and inexpensive and time-saving
Less restrictions and easy decision-making
Sole trader disadvantages
Unlimited liability (unincorporated)
Limited sources of finance
Hard to obtain bank loans
High risk
Workload and stress
Limited economies of scales
Lack of continuity
All the income tax is shouldered by one man
Partnership
A business owned by multiple people (at least two)
Partnership features
Unincorporated
Ordinary partnerships have a maximum of 2-20 people
At least one partner must have unlimited liability
Has a partner agreeement that outlines each partners’ responsibility
Turns into a corporation if there’s more than 15 partners and will pay corporate tax
Each person contributes money and resources, as well as sharing the responsibilities of managing a business
Can involve the presence of “silent” or “sleeping” partners, who do not make decisions, merely giving money to the business and earning profit
Partnership advantages
Set ups are inexpensive and quick
Financial strength (more partners eans more personal funds)
Specialisation and division of labour due to multiple people
Financial privacy (no need to public accounts)
Liability is spread around
Range of skills
Higher capital
Partnership disdvantages
Unlimited liability (unincorporated)
Prolonged and slower decision making
Lack of harmony
Profits must be shared among multiple partners
Private limited company (Ltd.)
A business that cannot raise share capital from the general public, the shares are sold to private family members, friends, etc.
Private limited company features
Incorporated
Registered at the Securities and Exchange Commision (SEC)
Examples: IKEA, Lego, Rolex, Chanel, etc.
Private limited company advantages
Limited liability
No limit on the number of owners
Shares can only be sold privately
Better decision making
Easier to raise additional funds
Higher capital
Higher capacity for expansion
Private limited company disadvantages
Profits have to be shared among much larger numbers of members
Setting up a business takes time and it’s costly
The company’s financial accounts are public
No member has full control of the company
Not allowed to sell their shares to the public
More restrictions
Corporate taxes (higher)
Public limited company (PLC)
Often are big, multinational companies boasting large numbers of employees that can advertise and sell their shares to the general public via the stock exchange
Public limited company features
Incorporated
Company whose shares are listed on a stock exchange and can be freely bought and sold by anyone
Required by law to publish their complete and true financial position
Must conduct shareholders’ meetings
An Ltd. can convert to PLC by offering stock market flotation or an initial public offering (IPO)
Examples: China mobile, HSBC, Samsung, Nike, etc.
Flotation
The process of convert a Private Limited Company to a Public one by issuing shares available for the public to purchase. This process is known as an initial public offering (IPO). It allows companies to obtain financing extrnally instead of usinf retained profit to fund.
Public limited company advantages
Shares an be sold to the public
Efficienct sources of finance are more available (bank loans)
Limited liability
Possibility of market dominance
Economies of scales
Tax benefits
More capital raised by selling stock
Continuity after death, freely transferable
Higher capacity for expansion
Public limited company disadvantages
Takes time due to bureaucraticnature of big companies
Communication issues due to size
Final accounts are public
Less able to offer personal services to customers
Compliance costs
Loss of control
Possibility of a hostile take-over through shares, control can change unexpectedly and be lost by the original owner
Corporate tax
Much more restrictions
Social enterprise
Revenue generating businesses with social objectives at the centre of business operations. These run according to business principles but do not aim at making profit
Their surpluses from trading may be shared with employeees and customers, pass onto a third party, used to buy resources, raise finance, employ staff, etc.
Cooperatives
An autonomous organisation of people united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly owned and democratically controlled enterprise
Cooperatives features
The common goal is to create value for the members by engaging in socially responsible business activities
All employees have a vote
Profit earned is shared between members
Cooperatives advantages
More incentive to work
Employees have decision-making power
Social benefits (CSR)
Public support
Shareholders must help run the organisation, work is more spread out
Equal voting rights/power among all shareholders
Cooperatives disadvantages
Disincentive effects
Limited sources of finance
Slower decision making
Limited promotional opportunities
Less profit for each shareholder as it is spread among many members
Microfinance providers
A financial service aimed at financing disadvantaged members of society and helping to stop the poverty cycle
Examples: small businesses, women, minority groupds, low-income individuals, unemployed, etc
Microfinance providers advantages
Disadvantaged people have access to this
Job creation
Social well-being incentives
Microfinance providers disadvantages
Immortality (benefit from the poor/unemployed)
Limited finance
Limited eligibility (not everyone qualifies)
Public-private partnerships
When the government works together with the private sector to jointly provide certain goods or services
Public ones are sold off or transferred to the private sector
Public-private partnership advantages
Incentivized to be more efficient and productive
Government can focus on other projects and infrastructure
Enjoy the skills and talents of the private sector (can lead to increased efficiency and productivity)
Public-private partnership disadvantages
Services provided would be more expensive
Prices goes up, government has to subsidize (increase in taxes)
Aim of profit may lead to cost cutting, lower quality, higher prices
Non-profit social enterprise
Businesses run in a commercial manner but without profit being the main goal. These companies use surplus revenues to achieve social goals.
Non-Government Organisation (NGOs)
Non-profit social enterprise that operates in the private sector (it is not owned or controlled by the government). It is set up to benefit society.
Non-profit organisations (NPO) features
Does not divide its funds between owners
Aim is to raise funds and use it for their beneficiaries
Example: service organisations or charities like Bantay Bata, PGH, PCSO
Non-Government Organisation (NGOs) features
Exist in the private sector
Participate in humanitarian projects, education projects, etc
Example: WWF, UNESCO, Red Cross
Charities
Provides voluntary support for good causes (from society’s point of view) such as the protection of children, animals and the natural environment. Reliant on donors, endorsements, promotion, etc.
Charities features
A non-profit organisation that is exempt from taxes
Deploys its resources for charitable purposes
May raise funds to reduce poverty or to reduce environmental problems
Examples: Caritas Manila, Pondo ng Pinoy
Charities advantages
Social benefits
Tax exemptions
Tax incentives for donors
Limited liability
Public recognition and trust
Awareness of social issues
Charities disadvantages
Bureaucracy
Disincentive effects
Charity fraud
Inefficiencies
Limited sources of finance
Pressure groups
Organised groups of people who actively work together to promote and defend their common issue/interest. They aim to bring about change.
Pressure groups features
Organised grou[s that do not run for election
Advocate certain interests such as environment, sexuality, religion, rights, etc
Seeks to influence the public or private sector for certain causes
Example: PETA, Greenpeace, Church, LGBT
Vision statement
Specifies the long term operations of a business, where it ultimately wants to be. It often describes how the organisation wants to be perceived. They aim to influence consumers’ perception of the business
“Where do we want to be?”
Mission statement
A statement of the underlying purpose of the organisation’s existance and its core values.
“How do we get there?”
Aims
Long-term goals of what the company wants to be, often the same as the overall vision and mission statement and describes the businesses’ reasons for being made
Example: To be the most successful independent coffee shop chain in the country
Objectives
Shorter term goals that are specific and measurable
Three levels of objectives
Strategic objectives
Tactical objectives
Operational objectives
Strategic objectives
The senior leadership sets the long-term goals
Determines the actions necessary to achieve the goals and mobilises resources to execute the actions
Affects: Whole company
“How will the goals/arims be achieved by the resources?”
Tactical objectives
Middle management develops medium-term action plans to achieve the stategic objectives of an organisation
Affects: Departments
Operational objectives
Lower-management develops short-term, day-to-day action plans to achieve the tactical objectives of the organisation as efficiently as possible
Affects: Teams
Changing objectives
Companies change objectives when responding to internal and external changes
Internal factors to changing objectives
Corporate culture
Type and size of organisation
Age of organisation
Financial status
Risk profile of shareholders
Private/Public sector
Private = Profit
Public = Service
External factors to changing objectives
State of economy
Government constraints
Presence and power of pressure groups
Corporate social responsibility (CSR)
The consideration of ethical and environmental issues relating the business activity, towards all stakeholders and not just to owners and shareholders
Example: The treatment of employes or how local communities would react to new projects
Corporate social responsibility aims
Treat customers and suppliers fairly and equally
Compete fairly
Example: Not engaging in predatory pricing
Treat the workforce with dignity and listening carefully to their needs
Corporate social responsibility benefits
Better employee recruitment and retention
Sense of value/reputation
Boosts company’s image/reputation
Risk management against scandals, accidents, etc
Appeases pressure groups
Brand differentiation and smoother operations
Customer loyalty & goodwill
Corporate social responsibility disincentives
High compliance costs can lower profits
Forced to use materials that are specialised and may reduce profit
Ethics are not universal or unchanging anyway
Lower profits may decrease personal bonuses which may lead to greediness
Attitudes change over time, acceptable practices before are unacceptable today
Purpose of ethical objectives
Altruistic attitude
Strategic attitude
Self-interest attitude
Altruistic attitude
The company genuinely does it for social benefits, they actually care about the impact of the company
Strategic attitude
Business that only is socially responsible if such actions help them to become more profitable
Self-interest attitude
The belief that it is the government’s job to protect society
SWOT Analysis
A qualitative way to identify key internal strengths & weaknesses and external opportunities & threats, seen as important to achieving an objective
Note 
Flashcard (27)