Unit 1

1.1-1.6

Business sectors

primary, secondary, tertiary, quaternary

A need

something we require to have to live e.g. food, water, clothes.

A want

something we desire but do not necessarily need for survival. e.g. jewelry. It is unlimited.

Opportunity cost

loss of an alternative due to the alternative you chose.

Business

is a decision making organization that produces goods and/or provides services.

Why businesses exist?

to satisfy needs and wants of people, organizations, and governments.

Stages in the production of finished goods

Input (raw materials, components, machinery, equipment, labor), processes, outputs(Provision of final goods and services)

Factors of production

land, labor, capital, enterprise

Market

a place or process where customers and sellers meet to trade.

Consumers

ones that actually use the product.

Consumer goods

products sold to the public. durable and non durable.

Services

intangible products provided by businesses

Profit

revenue-costs

Revenue

total amount of money brought in by the company by selling products/services

4 functional areas of business

production, marketing, finance, HR

Primary business

Any business that collects raw materials (farming, mining, fishing)

Secondary business

involved in manufacturing. uses raw materials and other resources for making usable products.

Tertiary business

business that provides services

Quaternary biznes

carries out research and analyses information.

Reasons for starting a business (6)

growth, earnings, inheritance and transference, challenge, autonomy, security, hobbies

NINE Factors to consider when starting a busines

1. The idea 2. finances 3.Human resources 4.skills 5. fixed assets 6.suppliers 7. customers 8.marketing 9.legalities

Public Sector

Owned by government. Provides essential goods and services to the public. (public schools, libraries, parks)

Private sector

owned by individuals and organizations with an aim to reach their own goals.

1 sole trader

Individual who is the owner of their own business. May hire other people (like family) to help run the bis. Financed with personal funds. Unincorporated. Unlimited liability.

+ Few legal formalities, owner gets full profit, full control over the business

- unlimited liability, limited sources of finances, workload, higher production costs

2. partnerships

profit seeking business operated by 2 or more people who finance the business with their own personal funds. It is unincorporated and has unlimited liability.
+ shared responsibilities, privacy
-unlimited liability, longer decision making, conflict, must have mutual trust

3. companies

Businesses owned by shareholders. Incorporated (so a separate entity). Limited liability.

+limited liability, continuity

-complicated and expensive set up. financial info is given to all shareholders. more legal requirments.

Private limited company

doesn’t sell shares to general public - only family & friends. Owners have greater control. Limited finances. eg. chanel, lego

+privacy, owners have more frreddom, limited liability, cheaper to set up than public

-Limited finance than Public bc it cant trade stocks

Public limited company

Sells its shares to general public through stock exchange. eg. coca cola, nike

+more access to finance, limited liability

-lacks privacy, cannot control who buys shares procedure to become PLC is complicated

for profit businesses (social profit businesses, not profit seeking or nonporifit)

cooperatives, microfinance providers, public private partnerships

Cooperatives (producer, consumer, worker)

Businesses owned by group of people working together to achieve shared needs and aspirations. they share ownership, profit, have democratic decision making. Focuses on benefiting the members.

ADVANTAGES OF A COOPERATIVE

• collective efforts

• the needs of the members are more likely met

• financial benefits for members

DISADVANTAGES OF A COOPERATIVE

• the business organization does not necessarily achieve all profits it could

• hard continuity

• harder to make decisions

Consumer cooperative

owned by people who are the customers. they access the sold goods at cheaper prices.
+work incentive, decision making, social benefit it

-limited finace source, slow decision m,

worker cooperative

owned by workers. like a cafe who is owned by the chefs and servers.

producer cooperative

owned by people who produce same type of goods. like farmers who want to access larger markets

Microfinance providers

financial service aimed at small business owners. especially those with low incomes. helps underprivileged take steps towards economic independence.

ppp

gov. work with private sector to create goods and services. like NY central park

Non profit

wants to promote special cause or provide some service. profit is not their objective. any profit is invested back into the businesses. like scouts

NGO (2 types)

profit is not their objetive.private sector obviously. wants to defend and promote a cause (advocacy) creates relief based and community projects (operational)

Pressure groups

nfo to adress a specific cause the members care about like pollution

Mission

Mission is a short or a medium term statement that introduces the purpose of the organisation.

Vision

states the long term aspirations of a business

Ethics and Morals

Ethics are set of rules that are applicable to a certain group or culture.
Morals refer to behavior a certain individual believes to be right or wrong.

Ethical business

business that is responsible for takes responsibility for a fair treatment of their workers, customers, shareholders, and environment. e.g paying employees fairly, using environmentally friendly products.

Unethical business

corruption within the workplace, environmental neglect, exploitation of workers, customers, or suppliers.

Needs and wants

Needs are things we require for survival

Wants are things we desire but do not necessarily need for survival

Opportunity cost

loss of an alternative due to an alternative you chose

9 factors to consider before starting a business

the idea, finances, human resources, skills, fixed assets, suppliers, customers, marketing, legalities.

customer vs consumer

customer is a person or an organization that purchases the product

consumer is the one who actually uses the products

Aims and objectives, strategies and tactics.

aims are general goals of an org

objectives are short or medium term targets of an organization to achieve its aims
strategies are to meet objectives
tactics are short term actions to meet its objectives

Unlimited liability

owner and business are not legally distinct, creditors can seize personal assets

Stakeholders

are people or organizations that have a direct interest in a business and are affected by its performance.

Internal stakeholders

members of the organization: employees, managers, shareholders, directors

External stakeholders

not members of the organization: customers, suppliers, competitors, government.

Conflict between stakeholders

varying interests, conflict over profit, different aims and objectives.

Stakeholder mapping

Shareholders

people or organizations that own shares in a company making that partial owners of it.

Market share

firm’s sales within a certain time period as a percentage of the industry’s total sales revenue.

how to measure growth of a business

its revenue, its market share, number of employees

why businesses want to grow

economies of scale, larger market share, survival against rivals, spreading risk by diversifying into new markets.

Economies of scale

lower production costs enjoyed by firms operating on a larger scale.

Multinational companies (MNC)

companies that operate in two or more countries.

+access to more customers so increased sales

economies of scale

risks are spread internationally

-language barrier

culture shock

high transportation costs

+MNC positive impact on host countries

increases jobs and decreases unemployment

introduces new products and skills

increases competition

adds to their GDP

-MNC negative impact on host countries

uses it limited resources

may drive out local businesses

hard to control their activities

Tariff

taxes on imported goods

Quota

limits on value or volume of imported goods

Internal economies of scale & external economies of scale

internal occurs inside the firm and is within its control.

technological economies, financial, marketing, purchasing, managerial economies.

external occurs within the industry but outside the firm thus is outside its control.

improved transportation networks, skilled labor, regional specialization.

large organization

brand recognition

trust due to good image

wide range of services

greater discounts

customer loyalty

small organization

cost control

personalized services

government aid

flexibility

small market size

Internal / organic growth

happens with the business’s own resources to increase the scale of its operations. marketing, new locations, changing prices.

+better control, maintains corporate culture

-slow

External / inorganic growth

growth through mergers and acquisitions.

+fast, introduction to new skills and expertise

-lower, corporate culture

mergers

2 or more business form a new company

acqusitions

one company buys out another by purchasing controlling interest and holding a majority stake.

businesses unable to grow, or in a financial crisis.

4 types of integration in M&A

horizontal - between firms in the same industry.

vertical - in the same industry but different stages of production.

lateral - different industry but similar operations

conglomerate - different industries

M&A

+greater market share

economies scale

product diversification

-conflicts between companies

culture clash

loss of control

joint ventures

two businesses set up a separate legal entity and they share profits costs risks control.

+shared expertise (katsey)

diversified risks

-clash of opinions

sharing profits

Strategic alliances

same as joint ventures except a new legal entity isnt created. its for mutual benefits.

+mutual benefits, less competitions, easy to set up

-miscommunication, short term

franchise

an external growth strategy where the franchisee receives the right to operate under the name of the franchisor in exchange for a royalty fee and a percentage of sales

franchisor + and - (owner of the brand)

+expansion, royalty fees, brand awareness

-if franchisee is incompetent, brand image is harmed, should provide technical support and training

franchisee + and - (org that receives the right to operate under the name of the franchisor)

+high success rate xalxs izidav popularuli saxelit, receives tech support and training

-royalty fees, sharing profits