IB Business Management Unit 1

The new (first exam 2024) IB Management Unit flashcards of all the key terms ^^

Businesses

Businesses

organizations involved in the production of goods and/or the provision of services.

Consumers

people or organizations that actually use a product.

Customers

people or organisations that purchase the product

entrepreneur

an individual who plans, organizes, and manages a business, taking on financial risks in doing so

Entrepreneurs

the people who manage organize and plan the resources needed for business activity in pursuit of organizational objectives. They are risk takers who exploit business opportunities in return for profits.

Entrepreneurship

the management, organization, and planning of the other three factors of production.

The success or failure of a business rests on the talents and decisions of the entrepreneur.

Goods

physical products produced and sold to customers, such as laptops, books, contact lenses, perfumes and children’s toys.

Needs

basic necessities that a person must have to survive, including food, water, warmth, shelter and clothing.

Primary sector

refers to businesses involved in the cultivation or extraction of natural resources, such as farming, mining, quarrying, fishing, oil exploration and forestry.

Production

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

Quaternary Sector

sub-category of the tertiary sector, where businesses are involved in intellectual and knowledge- based activities that generate and share information, such as research organizations.

Secondary Sector

refers to businesses concerned with the construction and manufacturing of products.

Services

intangible products sold to customers, such as the services provided by airlines, restaurants, cinemas, banks, health and beauty spas, schools and hospitals.

Tertiary Sector

businesses involved with the provision of services to customers.

Wants

people’s desires, i.e. the things they would like to have, such as new clothes, smartphones, overseas holidays and jewellery.

(key concept 1.2) Amount of Finance

Sole traders and partnerships need less start-up capital than a publicly held company. A change in the legal status of a business will usually require more finance

Size (key concept 1.2)

The larger and more complex the business operations, the more likely it is to be a limited liability company (corporation).

Sole traders, for instance, find it unnecessary or unaffordable to hire a large workforce or to operate a tall hierarchical structure

Limited Liability (key concept 1.2)

The desire to have limited liability, in order to protect the personal possessions of the owners, can affect the choice of legal status of a business entity

Degree of ownership and control (key concept 1.2)

Those who wish to retain control and ownership of a business may prefer to stay relatively small as sole traders or even as privately held companies.

The nature of business activity (key concept 1.2)

The type and scale of business activity can influence the legal status of an organization, e.g. mainstream aircraſt and motor vehicle manufacturers rely on external sources of finance, so are likely to be formed as publicly held companies.

Change (key concept 1.2)

As a business grows and evolves, it may need additional sources of finance and human resources. Thus, the type of organization and its legal status are likely to change.

Cooperatives

for-profit social enterprises set up, owned and run by their members, who might be employees and/or customers

company/corporation

refers to a limited liability business that is owned by shareholders. A certificate of incorporation gives the company a separate legal identity from its owners (shareholders).

Deed of Partnership

legal contract signed by the owners of a partnership. The formal deeds specify the name and responsibilities of each partner and their proportion of any profits or losses.

Incorporation

means that there is a legal difference between the owners of a company and the business itself.

This ensures that the owners are protected by limited liability.

Initial Public Offering (IPO)

occurs when a business sells all or part of its business to shareholders on a public stock exchange for the first time.

This changes the legal status of the business to a publicly held company

Limited Liability

a restriction on the amount of money that owners of a company can lose if the business goes bankrupt, i.e. shareholders cannot lose more than the amount they invested in the company.

Non-Government Organisations (NGOs)

private sector not-for-profit social enterprises that operate for the benefit of others rather than primarily aiming to earn a profit, such as Oxfam and Friends of the Earth.

Partnerships

a type of private sector business entity owned by 2-20 people (known as partners).

They share the responsibilities and burdens of running and owning the business.

Private Sector

the part of the economy run by private individuals and businesses, rather than by the government, such as sole traders, partnerships, privately held companies and publicly held companies.

Privately Held Company

a business owned by shareholders with limited liability but whose shares cannot be bought by or sold to the general public on a Stock Exchange.

Publicly Held Company

an incorporated limited liability business that allows shareholders to buy and sell shares in the company via a public Stock Exchange.

Public Sector

the part of the economy controlled by the government.

Examples include state healthcare and education services, the emergency services, social housing and national defence.

Sole Trader

self-employed person who runs the business on their own.

This means they have exclusive responsibility for its success (profits) or failure (unlimited liability).

Social Enterprises

revenue-generating businesses with social objectives at the core of their operations.

Can be for- profit or non-profit business entities, but all profits or surpluses must be reinvested for that social purpose rather than being distributed to shareholders and owners.

Stock Exchange

a marketplace for trading stocks and shares of publicly held companies (or public limited companies).

Examples include the London Stock Exchange (LSE) and the New York Stock Exchange (NYSE).

Unlimited Liability

a feature of sole traders and ordinary partnerships who are legally liable or responsible for all monies owed to their creditors, even if this means that they have to sell their personal possessions to pay for their debts.

Corporate Social Responsibility (CSR)

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

A business that adopts CSR acts morally towards all of its various stakeholder groups and the well-being of society as a whole.

Ethical Code of Practise

the documented beliefs and philosophies of an organization, so that people know what is considered acceptable or not acceptable within the organization.

Ethical Objectives

organizational goals based on moral guidelines, determined by the business and/or society, which direct and determine decision-making.

Ethics

moral principles that guide decision-making and business strategy.

Morals are concerned with what is considered to be right or wrong, from society’s point of view.

Mission Statement

refers to the declaration of an organization’s overall purpose.

It forms the foundation for setting the objectives of a business.

Objectives

specify what an organization strives to achieve.

They are the goals of an organization, such as growth, profit, protecting shareholder value and ethical objectives.

Strategic Objectives

the longer-term goals of a business, such as profit maximization, growth, market standing and increased market share.

Strategies

the various plans of action that businesses use to achieve their targets.

They are the long-term plans of the organization as a whole.

Tactical Objectives

short-term goals that affect a unit of the organization. They are specific goals that guide the daily functioning of certain departments or operations.

Tactics

the short-term plans of action that businesses use to achieve their objectives.

Vision Statement

an organization’s long-term aspirations.

i.e. where the business ultimately wants to be.

Conflict

refers to situations where stakeholders have disputes or differences regarding certain issues or matters.

This can lead to arguments and tension between the various stakeholder groups.

Customers

the clients of a business.

As a key external stakeholder group, customers seek to have value for money, such as competitive prices and good quality products.

Directors

senior executives who have been elected by the company’s shareholders to address business activities on behalf of their owners.

Employees

the staff of an organization.

They have a stake (an interest and involvement) in the organization they work for.

External Stakeholders

individuals and organizations not part of the business but have a direct interest in its activities and performance.

Examples include customers, suppliers and the government.

Financiers

the financial institutions and individual investors who provide sources of finance for an organization.

They are interested in the organization’s ability to generate profits and to repay debts.

Government

refers to the ruling authority within a state or country.

As an external stakeholder group, the government is interested in businesses complying with the law with regards to the conduct of business activities.

Internal Stakeholders

members of the organization, namely the employees, managers, directors and shareholders (owners) of the business.

Local Community

refers to the general public and local businesses that have a direct interest in the activities of an organization, namely to create jobs and to conduct business activities in a socially responsible way.

Managers

internal group of stakeholder responsibly for overseeing the daily operations of the business.

Pressure Groups

consist of individuals with a common concern (such as environmental protection) who seek to place demands on organizations to act in a particular way or to influence a change in their behaviour.

Stakeholder Conflict

refers to differences in the varying needs and priorities of the various stakeholder groups of a business.

Stakeholder Mapping

a model that assesses the relative interest of stakeholders and their relative influence (or power) on an organization.

Shareholders/Stockholders

the owners of a limited liability company.

Shares in a company can be held by individuals and other organizations.

Stakeholders

individuals or organizations with a direct interest (known as a stake) in the activities and performance of a business, such as shareholders, employees, customers and suppliers.

Suppliers

an external stakeholder group that provide a business with stocks of raw materials, component parts and finished goods needed for production.

They can also provide commercial services, such as maintenance and technical support.

Acquisition

a method of external growth that involves one company buying a controlling interest (majority stake) in another company, with the agreement and approval of the target company’s Board of Directors.

Average Cost

refers to the cost per unit of output.

Backward Vertical Integration

occurs when a business amalgamates with a firm operating in an earlier stage of production, such as a car manufacturer taking over a supplier of tyres or other components.

Conglomerates

businesses that provide a diversified range of products and operate in a range of different industries.

Demerger

occurs when a company sells off a part of its business, thereby separating into two or more businesses.

It usually happens due to conflicts, inefficiencies and incompatibilities following an earlier merger of two or more companies.

Economies of Scale

refers to lower average costs of production as a firm operates on a larger scale due to gains in productive efficiency, such as easier and cheaper access to source of finance.

External Diseconomies of Scale

occur due to factors beyond its control which cause average costs of production to increase as an industry grows.

External Economies of Scale

occur when an organization’s average cost falls as the industry grows.

Hence, all firms in the industry benefit.

External Growth/Inorganic Growth

occurs when a business grows and evolves by collaborating with, buying up or merging with other organizations.

Financial Economies of Scale

cost savings made by large firms as banks and other lenders charge lower interest (for overdraſts, loans and mortgages) because larger businesses represent lower risk.

Forward Vertical Integration

a growth strategy that occurs with the amalgamation of a firm operating at a later stage in the production process, such as a book publisher acquiring book retailers.

Franchising

refers to an agreement between a franchisor selling its rights to other businesses (franchisees) to allow them to sell products under its corporate name in return for a fee and regular royalty payments.

Horizontal Integration

an external growth strategy that occurs when a business amalgamates with a firm operating in the same stage of production.

Internal Diseconomies of Scale

occur due to internal problems of mismanagement, causing average costs of production to increase as a firm grows.

Internal Economies of Scale

occur within a particular organization (rather than the industry as a whole) as it grows in size.

Internal Growth/Organic Growth

occurs when a business grows using its own capabilities and resources to increase the scale of its operations and sales revenue.

Joint Venture

a growth strategy that combines the contributions and responsibilities of two or more different organizations in a shared project by creating a separate legal enterprise.

Lateral Integration

refers to external growth of firms that have similar operations but do not directly compete with each other, such as PepsiCo acquiring Quakers Oats Company.

Marketing Economies of Scale

when larger businesses can afford to hire specialist managers, thereby improving the organization’s overall efficiency and productivity.

Merger

a form of external growth whereby two (or more) firms agree to form a new organization, thereby losing their original identities.

Optimal Level of Output

the most efficient scale of operation for a business.

This occurs at the level of output where the average cost of production is minimized.

Purchaser

refers to the acquiring company in an acquisition or the buyer of another company in a takeover.

Purchasing Economies of Scale

when larger organizations can gain huge cost savings per unit by purchasing vast quantities of stocks (raw materials, components, semi-finished goods and/ or finished goods).

Risk bearing economies of scale

occur when large firms can bear greater risks than smaller ones due to having a greater product portfolio

Specialisation economies of scale

when larger firms can afford to hire and train specialist workers, thus helping to boost their level of output, productivity and efficiency.

Strategic Alliance

formed when two or more organizations join together to benefit from external growth, without having to set up a new separate legal entity.

Synergy

a benefit of growth, which occurs when the whole is greater than the sum of the individual parts when two or more business operations are combined.

Synergy creates greater output and improved efficiency.

Takeover/Hostile Takeover

occurs when a company buys a controlling interest in another firm without the prior agreement or approval of the target company’s Board of Directors.

Target Company

refers to the organization that is purchased by another in an acquisition or takeover deal.

Technical Economies of Scale

cost savings by greater use of large-scale mechanical processes and specialist machinery, such as mass production techniques which help to cut average costs of production.

Vertical Integration

takes place between businesses that are at different stages of production.

Gross Domestic Product (GDP)

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

Host Country

is any nation that allows a multinational company to set up in its country.

Multinational Company (MNC)

an organization that operates in two or more countries, with its head office usually based in the home country.

Protectionist Policies

measures imposed by a country to reduce the competitiveness of imports, such as tariffs (import taxes), quotas and restrictive trade practices.