Role of Business

• This refers to the impact of businesses on the rest of the country

• The two key areas that businesses contribute to are:

  • Goods and services

  • Employment

• In this way, businesses are important to society and the economy

• Businesses will respond to consumer demand and produce products to earn profit

Types of Business

• Businesses are generally classified as local, national or global

  • A local business has a restricted geographical market; serving the

    surrounding area

  • A national business operates in just ONE country

  • A global business has a home base in ONE country but owns operations

    in other countries

  Geographical Location

  • Local

    • Confined to a suburb or town; restricted geographical spread

    • In no position to offer services to another suburb or town

    • Used by consumers that live nearby

    • Majority tend to be Small to Medium in size

      • Examples include; Newsagents, corner stores, hairdressers, mechanics, and pharmacies

  • National

    • As a business grows it increases its range of goods and services

    • National businesses operate in only one country

      • Coles is an example of a National company that began as a local business from Collingwood, Victoria with 6 employees and now has 112,000 employees

    • As a national business expands and increases its sales, it will eventually look toward global markets as it runs out of new customers to sell to (saturated domestic market)

      • Harvey Norman is an example of a National business that went global

  • Regional

  • Global

    • Commonly named multinationals or TNC’s

    • These are large businesses that have branches in different countries

      • Distinguished from smaller businesses that operate in a global market

    • For global businesses, national borders do not represent barriers to trade

    • Examples include; Coca-Cola, McDonald’s, News Corp, BHP, Toyota, Westfield, and Google

  The global expansion of ONE Australian business

  • Ego Pharmaceuticals

    • Manufactures skincare products including QV Skincare, SunSense, and Aqium hand sanitiser - in total it produces 120 products

    • Success achieved by expanding into overseas markets

    • Now exports to 27 countries in the Asia-Pacific region, Europe, and the Middle East

    • Taiwan: A success story - in 2003 a subsidiary was established (called Ego Pharmaceuticals Taiwan Pty Ltd)

      • Allowed increased control of marketing and sales work

      • This has led to increased sales

    • All products are still manufactured in Victoria, Australia

    • They also run a pharmacy-only distribution model - supporting pharmacies all over the country

  The 5 Main Industry Sectors

  • Primary

    • This is the industry that is involbed with the collection of natural resources

      • Farming

      • Mining

      • Fishing

      • Grazing

      • Forestry

    • Employs 7.6% of labour force - minor industry but important as it provides all food requirements

    • 60% exports come from this industry

  • Secondary

    • These businesses take the output of firms in the primary industry (raw materials) and process it into a finished or semi-finished product

      • Iron ore, coal, and limestone (from primary) creates steel (by secondary)

      • Steel is a semi finished product used to manufacture cars

      • So the steel is bought by a business into the secondary sector and sold to another business in the secondary sector

  • Tertiary

    • This refers to services - people performing a range of services for other people

      • Dentists

      • Solicitors (as contract preparation)

      • Banks (as a money storage)

      • Retailers

      • Museums

      • Health workers

    • Services are further and more specifically classified depending on the type of service they are performing

      • Quaternary or Quinary industries

  • Quaternary

    • This refers to the services that involve the transfer/processing of information and knowledge

      • Telecommunications

      • Property

      • Computing

      • Finance

      • Education

    • A waternary business provide advice or transfer the information in some way to the consumer

  • Quinary

    • This industry includes all services that have traditionally been performed in the home

      • Hospitality

      • Childcare

      • Craft-based activities

      • Tourism

      • Cleaning services

    • This can include paid and unpaid work

  Classified by legal structure

  • Unincorporated (Not separated - Owner and business are one)

    • Owner assets are at risk as there is no separation between business assets and owners assets as the business and owner are one

    • If the owner dies - so does the business

      • Same legal entity

      • Unlimited liability

    • Sole Trader

      • One owner

    • Partnership

      • 2-20 owners

  • Incorporated (Separated - Owner and business are separated)

    • Refers to when a business goes through a process to separate itself from the owner. It becomes a separate legal entity and regardless of what happens to the owner the company can continue to operate

      • Separate legal entity

      • Limited liability

        • Owners assets are protected as the only assets at risk are the assets that belong to the company

    • Private Company

      • <50 shareholders

      • __________________Pty Ltd

    • Public Company

      • ASX listed

      • __________________ Ltd

  • The process of incorporation is going from unincorporated to incorporated

  • Sole Traders

    • Owned and operated by ONE person

      • They can employ other people BUT it is the owner who makes the decisions, takes the responsibility, and provides the finance

    • Easy to establish

      • Register a business name (if it is different from the owners name) with ASIC

    • NOT a separate legal entity

      • The owner and the business are the same

      • If the business is sued then the owner (and owners assets) are sued

    • Sole traders have UNLIMITED liability

  • Partnership

    • Owned and operated by 2-20 people

      • Exceptions to these numbers apply to Medical practitioners and stockbrokers who are allowed up to 50 partners

      • Vets, architects, and chemists are allowed 100 partners

      • Soliciters and accountants are allowed up to 400 partners

    • NOT a separate legal entity

      • The owners (partners) and the business are the same

      • If the business is sued then the owners (and owners assets) are sued

    • Partnerships have UNLIMITED LIABILITY - the owners take full responsibility

      • There is existing legislation that sets out the conditions of a partnership: Partnership Act 1982

      • Limited partnerships refer to the silent partners who contribute financially but do not take part in the running of the business

    • Partnerships need to agree on many points before commencing business

      • Names of partners

      • The amount of money each partner contributes

      • How the profits and losses will be shared

      • The duties of each partner

      • Limitations on the authority of the partners

      • How the partnership will end if an owner chooses to leave

      • How to resolve disputes

  • Private Company

    • Has between 2-50 shareholders

    • Tend to be small / medium family-owned businesses

    • Shares in the business are offered

    • Shares can only be sold to ‘approved’ people (other directors have a say)

    • NOT listed on the ASX

    • A separate legal entity from the shareholders with LIMITED LIABILITY

      • Owners assets are protected from the activities of the business

      • Risk is in the loss of initial investment

    • Company can be sold or wound up if all shareholders approve

  • Public Company

    • Has at least ONE shareholder with no maximum

      • Minimum requirement of 3 directors (TWO must live in AUS)

    • Large business

    • Listed on the ASX - where the public can buy and sell teh shares

      • Prospectus must be prepared when selling shares for first time IPO

      • Annual report must be prepared and published for the public to inspect

    • A separate legal entity from the shareholders with LIMITED LIABILITY

      • Shareholders assets are protected from the activities of the business

      • Risk is in the loss of initial investment

  • Government enterprise (GBE’s)

    • Government owned and operated

    • Similar goals to other businesses - to make a profit

    • Run by a board of directors who takes on government input

    • Large ‘businesses’ but few in number (after many have been privatised)

      • Australian Rail Track Corporation Ltd

      • NBN Co

      • Australia Post

    • Government enterprises are established by an Act of Parliament, which defines the functions and powers of the business.

Advantages & Disadvantages of Legal Structures

• Sole Trader

  • Advantages

    • Low cost of entry & operation

    • Complete control

    • No partner disputes

  • Disadvantages

    • Difficult to operate if sick

    • Burden of management

    • Need to perform wide variety of tasks & unlimited liability

• Partnership

  • Advantages

    • Shared responsibility and workload

      • Pooled talent, finance, resources

    • No taxes on business profits

    • Minimal government regulation

  • Disadvantages

    • Unlimited personal liability

    • Liability for all debts including partner’s

    • Possibility of disputes

• Private Company

  • Advantages

    • Limited liability

    • Growth potential

    • Can transfer ownership easily

  • Disadvantaages

    • Cost of establishment

    • Double taxation

    • Can become too large, resulting in inefficiencies

• Public Company

  • Advantages

    • Limited liability

    • Easier to get finance

  • Disadvantages

    • Annual report (financials)

    • Cost of establishment

Factors that influence the choice of legal structure

• Size

  • Most businesses start as small or even micro businesses

    • So the most suitable legal structure is sole trader or partnership

  • As sales grow, the business does too - this can mean perhaps the size changes to a medium business

    • New equipment will be purchased

    • More employees

    • More injection of funds

  • The owners may require greater protection of their assets and seek limited liability through the incorporation of the business

  • Similarly, the further growth a private company may want to ‘float’ their business and become public. A prospectus would be prepared and presented to the ASX so that shares can be offered to the public

• Ownership

  • If complete control is desired then sole trader is the only realistic option

  • Shared ownership leds itself to a partnership

  • A high degree of control but also protection of limited liability suits a private company

  • BUT once a company goes public, the ownership is shared among thousands of small individual shareholders, so if the original owner still wishes to retain control they will need to hold greater than 50% of the shares

• Finance

  • Injections of finance are a requirement of all businesses

    • Used to purchase equipment, undertake research, hire staff, etc.

  • Sole traders and partners can find this difficult as they are small in size and have unlimited liability

    • Common sources of finance; personal savings, loans from friends, reinvestment of business fund, credit cards, trade credit, and bank loands

  • Companies have more options

    • Public companies can raise capital from public investors (selling shares)

    • Banks do not perceive companies as high risk - so will lend more willingly

• Other factors

  • Legal liability

    • Do the owners want protection of their assets

  • Tax implications

    • The progressive tax system applicable to individual personal incomes (sole trader and partnership) may move into a tax payment larger than the fixed company tax rate

  • Cost and complexity of formation

    • Each company has different documentation and legal requirements

      • Sole trader is the simplest

      • Public companies have many requirements and reporting obligations

Influences in the Business Environment

• External Influences on Business:

  • Mnemonic: "Every Frog Grows Special Long Petals In Time CoS Men

    • Explanation:

      • Every: Economic

      • Frog: Financial

      • Grows: Geographic

      • Special: Social

      • Long: LegaL

      • Petals: PoliticaL

      • In: Institutional

      • Time: Technological

      • CoS: Competitive Situation

      • Men: Markets

• Internal Influences on Business

  • Product

  • Location

  • Management

  • Resource Management

  • Business Culture

External Influences

Economic Influences

• What are Economic Influences?

  • Refer to the economic activity in a country or the world

    • Includes features such as;

      • Interest rates

      • Wages

      • Unemployment

      • Inflation

      • Exchange rates

    • Change is normal, as ups and downs are expected but sometimes an economy experiences a shock

  • A significant economic event such as the GFC or COVID19 is called an economic shock

    • These can have an enormous impact on both businesses and infividuals

    • Impact the businesses ability to compete and customers willingness to spend

  • Recall your understanding of the economic cycle which tracks periods of growth and recession that occur as a result of changes in economic activity

• The economic cycle (aka business cycle)

  • Businesses can experience prosperity (high sales volume, profit, growth) but then business activity gradually slows until a recession is reached

  • Eventually, this trough turns and business activity picks up again until prosperity is restored

    • Expansion

      • Increasing consumer spending

      • Business expectations increasingly optimistic

      • Increasing business investment

      • Sales and profits rising

      • Unemployment falling

    • Contraction

      • Decreasing consumer spending

      • Business expectations increasingly pessimistic

      • Decreasing business investment

      • Sales and profits falling

      • Unemployment rising

    • Peaks

      • Wages and salaries at high levels

      • Business operating at full capacity

      • Sales and profits at highest levels

      • Low level of unemployment

    • Troughs

      • Wages and salaries at low levels

      • Business operating at below full capacity

      • Sales and profits at lowest level

      • Consumer spending at lowest levels

      • High levels of unemployment

• Signs of change

  • As the economic cycle shows signs of contraction or expansion, there are signals and reactions

    • Consumer confidence is a driving factor in the business reaction

    • With falling confidence and spending by consumers, businesses will cut back their workfroce and product supply to match demand

    • This results in further unemployment

• Business action on economic influences

  • Businesses can access information on:

    • Economic growth

    • Inflation trends

    • Average weekly earnings

    • Consumer confidence

    • Interest rates

    • Consumer spending

    • Unemployment

  • This allows businesses to predict threats and opportunities

  • At times, Governments implement policies aimed at managing the economy (growing steadily) without causing inflation (general increase in prices over time) or putting pressure on wages

    • During the COVID19 pandemic, the government supported the economy with job retention schemes such as JobKeeper and JobSeeker

    • The government also provided stimulus measures such as vouches for consumers to spend

• Consumer reactions

  • When economic problems start to appear (rising interest rates, overseas economic crisis, political instability, the crash of a market) consumers become more cautious in how they spend

    • Reduced spending

    • Impact on business owners

    • Profit falls and costs are cut

    • Newly unemployed workers now cannot spend either, pushing economy into deeper recession

    • .

    • Opposite is true for when the economy appears to be recovering

  • THE EXCEPTION TO THE RULE

    • Not all businesses perform poorly in a recession

      • Discount businesses such as bargain shops and clearance outlets do well

    • Similarly there are businesses that are impacted more than others

      • Luxury businesses are the first to feel the impact of reduced consumer confidence

Financial Influences

• Refer to the issues, costs, and opportunities related to the funding and investment of a business

• Both small and large businesses borrow money as part of their business operations

• Changes and deregulation

  • The financial markets have changed greatly over the last 3 decades

  • This has an enormous impact on business operations

    • Deregulation (taking away regulations) - A market oriented approach to the financial sector that has opened up the financial industry to greater competition which lowers prices of financial products

  • Changes in the global and domestic financial markets will influence the cost of borrowing money which directly affects th elevel of investment by and in a business

• Interest rates and debt finance

  • It is common for businesses to access debt finance (e.g. a loan)

  • A business is profit oriented so keeping interest costs down is critical to achieving their goals

    • As interest rates rise, business will be less likely to take on extra debt and when interest rates fall, businesses are more likely to take on extra debt

    • 2019-2020 interest rates in Australia were at all time lows, they now sit at 0.1% and have not been raised by the RBA due to COVID19's impact on the economy

• Global access to finance

  • Globalisation means that borders and barriers to entry between nations do not exist

    • Many large Australian businesses now borrow from overseas financial institutions

  • Development in technology has allowed for financial transactions to take place online

    • Fast, efficient, and timely

    • There are still some risks that include exchange rate fluctuation when paying for global supplies and when paying interest on global debt

    • Derivatives are a financial product that protect businesses from these global risks

Geographic Influences

• Geographic Influences

  • This refers to the effects of not only where a business is based, but also natural geography as well

    • Climate

    • Natural resources

    • Topography

    • Physical infrastructure

  • Australia has benefited from geographic influences with its natural resources (minerals), global proximity to Asian emerging economies (China), and access to physical infrastructure (access to machinery)

  • The close reach of the Asian nations to Australia presents challenging opportunities for business expansion, sales, and profit

  ---

  • The aging population of Australia will have a big impact on business activity in Australia

    • Demographics refer to the features of a population;

      • Size

      • Age

      • Sex

      • Cultural Background

      • Family Size

    • Changes to these features will consequently change the levels of demand and the types of goods and services that consumers need and want

    • People born between 1946-1964 are called baby boomers and they are now retiring so products for the elderly will increase in demand - skills shortages will also occur

  ---

  • Globalisation is another important influence

    • National borders are not a barrier to trade

    • Clothes, media, telecommunications trade freely between global businesses and consumers

    • Technology aides globalisation - it presents both challenges (increased competition) and opportunities (new markets to access) with the click of a button

    • Globalisation also allows businesses to buy supplies, raw materials, and finished goods from the global market - often in bulk which reduces costs through a concept called economies of scale

Social Influences

• Social influences

  • This refers ot the societal attitudes and behaviours

    • Ideas, values, beliefs held by people

    • Sometimes affects behaviour - which is actions that express those ideas, values, and beliefs

    • Constantly changing

    • Affects how individuals live, work, consumer products, how businesses operate and how stakeholders view the business in which they have an interest

  • The values, beliefs, and attitudes of society

  • Changing your business in response to social influences e.g. fashion and culture, can lead to increases in sales and profits

    • Failing to identify and respond quickly will reduce sales and profit opportunities and growth

    • The current major social influences on business are:

      • Growing environmental awareness

      • Work/life balance improvements

      • Workplace diversity

• Environmental sustainability

  • This means that consumers are interested in the business operations and that they are shaped around the sustainable use and consumption of resources without harming the environment for future generations

    • Some businesses increase their sales by making consumers aware that they are

      • Reducing and minimising waste

      • Recycling

      • Reducing carbon footprint

      • Not harming the habitat of fauna/or testing on animals in any way

      • Disclosing the environmental protection policy of the business

  • This can lead to higher sales as consumers buy more products from environmentally sustainable businesses who share their concern for the environment

• Work life balance

  • A social issue where family-friendly workplaces are sought out

    • This can mean a workplace that has policies that

      • Allow flexible working hours

      • Provides childcare provision

      • Supports a worker who has a young family by allowing work from home if child is sick

      • Initiates family friendly atmosphere - bring your child to work day, company picnic days

  • This is not a consumer issue, and yet it is an operational issue that is driven by forces outside of the control of the business

  • A business who wants to have a productive workforce must respond in order to keep the workforce happy, efficient, productive, and most importantly loyal

• Workplace diversity

  • The third social change is a growing belief that business should be representative of society when employing people. It should be diverse. This means it should reflect differences in:

    • Gender

    • Age

    • Language spoken

    • Ethnicity

    • Cultural background

    • Disability

    • Sexual Orientation

    • Religious belief

  • Although Australian legislation prohibits discrimination against any of these groups, a business who embraces diversity that is fair and equitable will attract and retain staff more effectively

  • A diverse workforce leads to increased morale, creativity, productivity, and competitiveness

Political Influences

• Political Influences

  • Government policies have a considerable impact on business

  • The process of privatisation and deregulation have had huge impacts on Australian business, particularly in the utilities and financial sectors

  • Dominant political issues affecting business

    • Labour market reforms

      • Decentralisation of wage determination

      • Raising minimum wage

    • Taxation

      • Goods and services tax (GST)

    • Social reforms

      • Paid parental leave

    • Environmental management

      • Emissions Trading Scheme (ETS)

  • Political change can lead to uncertainty

    • Processes may need to change

    • Profits may be impacted

    • Products may need to be altered or deleted from range

    • Internal policies may need to adapt to reflect the political direction of the change

    • Competition may increase

  • The impact of free trade has had an enormous impact on businesses - it means barriers to trade between nations were removed to encourage increased competition

    • If a local business cannot compete with a global business they may fail and go out of business

Institutional Influences

• Institutional influences

  • These include

    • Levels of Government - Federal, State, and Local (Council)

    • Government institutions such as FWC, ACCC, ASIC, EPA

    • Employer associations and peak bodies

    • Unions and employee groups

    • ASX

• Regulatory bodies

  • A regulatory body is set up to monitor and review actions of buisnesses and consumer - a government body that is independent (not run by politicians)

  • They observe the action in relation to relevant legislation

  • Their role is to ensure that the business conducts themselves fairly in relation to:

    • Consumers

    • Community

    • Other businesses

  • Each regulatory body has their own role:

    • EPA (Environmental control)

    • ASIC (Finance/Business name reg.)

    • ACCC (Ensure fair competition in market)

• Other institutions

  • In addition to government bodies

    • Employer associations (offer support and advice to businesses)

    • Trade and industry associations (provide collective support to an industry such as National Farmers Federation)

    • Trade unions (members pay a fee for support on workplace issues)

    • ASX (operates the sharemarket where companies can raise finance)

Technological Influences

• Technological Influences

  • Developments in business technology include (CAUSE)

    • The use of robotics in manufacturing

    • Computerisation of management information systems

    • Use of communications technology to reach new markets and consumers

  • With appropriate technology, businesses can (EFFECT)

    • Increase efficiency and productivity

    • Create new products

    • Improve the quality and range of goods and services

    • Reduce operating costs significantly and eliminate boring or repetitive tasks

    • Reduced communications delays and allow suppliers and customers to interact over great distances

  • Other technologies that allow communication networks

    • Teleconferencing / video conferencing

    • Email

    • Smartphones

    • Cloud computing

  • This connectedness creates opportunities for greater flexibility and possibility of working remotely

  • This technology allows local / national and global businesses to operate on the same playing field

  • Businesses slow to adopt technology will likely fail, the competition gaining market share and a sustainable competitive advantage

  • The downside

    • Can lead to a decrease in the number of employees required

    • The speed of change means the products (life cycle) is shorter and products don’t last as long constantly needing updating

    • More money is spend on research and development on new products to remain competitive

  • At the pace that technology is developing the next 5-10 years may bring more internet connected devices (computers, phones, vehicles and robots) - presenting challenges with data management

  • Smarter robots will replace even more roles in the workplace (dangerous jobs, repetitive or mundane jobs)

Competitive Situation Influences

• Competition can be good for the

  • Consumer:

    • More choice

    • Range of prices

    • Competitors compete for the consumer by improvements in the product or reduction in the price

  • Business

    • Greater efficiency

    • Better products

    • Lower costs

• Factors influencing a business’s competitiveness

  • Local and foreign competition

  • ease of entry into a market for a new business

  • Number of competitors

  • Marketing strategies employed by competitors

• Number of competitors (market concentration)

  • The number of competitors a business is competing with to gain market share will impact the business decisions

    • The number of competitors is referred to as market concentration

    • When there is a monopoly ease of entry into a market for a new business is quite difficult, whereas where there is perfect competition (many smaller competitors) ease of entry is not difficult

  • Monopoly

    • Complete concentration by one firm in the industry

    • Firm has the ability to decide the price of the good or service because there are no competitors

    • Customer has no influence over the price charged

      • EX: Australia post

  • Perfect competition

    • Large number of small businesses that sell products that are the same or similar

    • Very little advertising is used to increase market share

    • The only way to achieve market share is through price competition

  • Oligopoly

    • Consists of a small number of larger firms that dominate the market

    • Are able to stay in control of the market because they spend large amounts of money on advertising and this enables them to restrict the netry of new competitors to the market

  • Monopolistic competition

    • Most common type of market in Australia

    • Large number of buyers and sellers

    • The goods and services sold are differentiated from competitors using methods such as:

      • Packaging

      • Advertising

      • Brand names

      • Quality

• Global competitors

  • With more global businesses entering the Australian market, and Australian businesses exploring the global market there are variables (factors that change) that must be considered

    • Labour costs (consider the costs, skill, availability)

    • Transport costs (shipping, storage)

    • The economy (impacting; exchange rates, and eventual cost; demand; taxes)

    • Cost of stock/raw materials (economies of scale and lower cost suppliers)

Market Influences

• Financial market

  • Changes in financial/capital markets

    • Access to share markets (domestic and global) is easier

      • Many economies have reduced or withdrawn financial controls, making it easier for Australian businesses to access finance (capital) from overseas investors

      • Overseas investors will be interested in Australian businesses if the returns are favourable

    • Changes in the global market can affect domestic markets (e.g. GFC)

      • Situations such as the conflict between Russia and Ukraine or more historically the GFC and COVID pandemic can create uncertainty - this provides opportunities businesses that are in stable economies

• Labour market

  • Changes in labour market

    • Flow of migrants is now more controlled or even restricted (COVID) which creates issues for businesses that rely on migrant workforce - low skilled labour

      • TSS (Temp Skills Shortage) Visa - short to medium term placements for specific industries such as nurses, fruit pickers, and areas where the demand for workers cannot be met by Australian workers

    • Demands for skilled labour to support the growth in Australia’s mining sector (driven by China’s demand for commodities)

    • Rise in outsourcing/offshoring

• Consumer market

  • Changes in consumer market

    • Access to technology means more consumers shop globally

      • With consumers from all over the world being ‘internet shopping savvy’ businesses can employ economies of scale to create more efficient production and cut costs

    • New consumer markets have emerged, particularly China and Japan

      • Reduced barriers (taxes and duties adding to the price) allow for great number of new potential customers

    • However, global tension between nations should be acknowledged as a threat to international trade between some nations

      • Fuel and energy prices many rise = inflation = consumer expenditure on other products is reduced

Table

Internal Influences

Table

Stakeholders

• Stakeholders

  • A stakeholder is any group or individual who has an interest in, or is affected by, the activities of a business

  • Internal stakeholders:

    • Shareholders

    • Managers

    • Employees

  • External stakeholders

    • Customers

    • Suppliers

    • Government

    • The Community

    • Competitors

    • Unions

    • Investors

  • A business has a number of responsibilities towards its stakeholders. These responsibilities will affect how that business operates.

Internal

• Shareholders

  • Poeple and businesses which buy shares in a company

    • They become owners of the business and are entitled to a share of the profits

  • The directors, who are appointed by the shareholders, must act in an ethical way

    • Directors and managers must not create conflict of interest situations where they benefit at the expense of the business and its shareholders

• Managers and Employees

  • They are dependent on the business continuing to employ them, as their jobs are their sources of income

  • The social and ethical responsibility of business to them is to provide:

    • Job security

    • Fair wage or salaries

    • A safe working environment

    • Satisfying job and appropriate training

External

• Customers

  • Customers are the reason for business existence. The goals of the business should always be directed at satisfying customers wants

  • The business must provide a safe and reliable product or service at a fair price. It should also have effective after-sales service

  • The business must also provide what it promises

• Suppliers

  • These individuals or businesses provide inputs to a business

    • Water

    • Electricity

    • Computer operations

    • Payroll

  • Poor communication can lead to misunderstandings, hence it is important to maintain open and honest communications with your supplier

• Government

  • Government and the laws they create affect businesses

  • Owners must ensure that their business complies with the law, including but not limited to:

    • Tax

    • Anti-discrimination

    • Health and safety

  • Other legal constraints are:

    • Records must be kept

      • Taxation requirements, both state and federal

    • Health and safety laws:

      • Employees must be well protected, machinery must be well maintained, and protective clothing must be enforced

    • Council and zoning regulations:

      • Deals with parking laws and development laws

        • ex: DA & BA applications

    • Adveritising must not be misleading

      • CCA (2010)

      • ACCC

    • The contents of certain products must be listed on the packaging

    • Laws relating to the transportation & storing of products

    • Government approval is needed before some products can be sold to the public

    • Wage & working conditions agreements must be respected

      • FWC

      • FWA (2009)

    • Businesses must not be involved in unfair trading practices

    • Pollution and environmental laws must be respected

  • Government is a stakeholder as they are responsible for ensuring that current legislation protects society

  • Legislation should provide businesses with rules on how to operate

  • Government are also a stakeholder as businesses provide some of its income through the payment of taxes, employment of workers who pay tax and through selling products that incur GST

• Environment

  • Most businesses are aware of environmental laws. Businesses will eventually lose customers and money if they are seen to act in an unacceptable way

    • Ex: Unfriendly packaging used by fast food outlets

  • Volkswagon pretended to abide by environmental concerns. What happened?

    • They lost a lot of customers and they got fined because they advertised being environmentally friendly (lowest carbon emissions) and competitors revealed that it was not true

• Society

  • Society scrutinizes business activities greater than it once did, because of product safety, poor quality products, additives to food products, and environmental damage

  • There are also social and ethical responsibilities: unpopular governments due to human rights

  • Companies found to be targeting children with unhealthy food

  • Banks because of fees & repossession of properties

  • Companies guilty of unethical business practices

  • Advertisers who use sexist and racist images

• Competition

  • Business must exist competitively and ethically

  • Burning down a competitors business is not acting morally or ethically

  • Competitors will also impact the strategies employed

    • e.g. product innovation, pricing, and promotion

• Unions

  • By the late 1990s, less than 40% of Australian employees belonged to unions. Unions represent the interest of employees. They are involved in negotiating awards, and enterprise agreements.

• Investors & lenders:

  • Shareholders, banks, financial institutions fall into this group.

  • Businesses must not hide information from their lenders and they must always act in their best interest

• Insurance Companies:

  • Risks are associated with business, hence a business must be protected.

  • E.g. Workers Compensation

Stages in the Business Life Cycle

Growth Stage and Response

• Growth stage of the BLC

  • The second stage is where growth accelerates

  • Sales increase and cash flow is normally positive

  • There is now an established customer base with regular clients making up a large % of sales

  • The business is developing new products and segmenting their market

  • Marketing is a focus now

    • Promotion and service strategies

  • Owner has a sense of pride and there is a strong culture lead by its leader

  • Business must now protect its competitive edge otherwise copycat competitors will steal market share

• Growth

  • Increased market awareness

  • Need cash to pay for expansion

  • High investment requriements to increase scale of operations

  • Introduction of new products

  • Improved product quality

  • Improved distribution

  • Increasing sales volumes and increasing profit margins

  • Marketing concerned with developing market niche

  • More available finance as firm establishes a credit rating

  • Mergers, takeovers, or product diversification

• EXAMPLE

  • Top line bakery wants to grow, if they buy the wheat farm that sells them wheat, it is called backward vertical integration

  • If they sell to a new industry, it is called forward vertical integration

  • If they buy out their competitors, it is called horizontal integration

    • Backwards and forwards if it is part of your supply chain

    • Horizontal is your competitors

    • Diversification is buying a company that is entirely different to your industry

Business Life Cycle Table

Establishment Stage - Business Life Cycle

• Establishment stage of the BLC

  • The first stage of the life of a business is establishment

  • This is when the business is the most vulnerable

  • The business will want to:

    • Generate sales to earn income

    • This will be used to pay expenses and generate a positive cash flow

  • Establishing a business is NOT EASY

    • Detailed planning in this stage of the BLC will help to reduce the risk of failure

• The challenges in the establishment stage

  • The main challenges are lack of money, high risks due to uncertainty of sales, unincorporated legal structure

  • Other challenges include:

    • Lack of finance

    • Establishing a customer base

    • Lack of experience

    • Casfhlow shortages

    • High set-up costs

    • Profit

    • Employees - usually only a few

  • Responses include:

    • Family, venture capital, and bank finance

    • Undertake market research: start small; create positive relationships, and forecast customer needs

    • Take advice - bank, industry, independent

    • Prepare budgets

    • Don’t spend on unnecessary items

    • Manage costs and avoid wastage

    • Establish work routines and staffing needs carefully - employ casually to suit erratic sales behaviour

• Establishment

  • High cost: expenditure > revenue = loss

  • Little or negative profit

  • Determination of business location

  • Permission to set up

    • e.g. lodging DA with council, registration of name

  • Formulation of mission statement and goals

  • Technical problems

    • Operations process not certain

  • Limited finance

  • Limited market for the products

    • Scare buyers

  • The establishment stage can be very difficult. Even though the owner has tremendous faith in the product, potential customers are not familiar with it and will be reluctant to purchase it

  • Retailers will also be reluctant to put it on their shelves, because it has no track record. The retailer expects a return from each metre of shelf space and would much prefer products on the shelves that have a track record of a certain value of sales

  • It will take time to establish the product. During this time when it is hard to sell products, costs, or expenses, will be high. It is not just the costs of the machinery and the premises. One of the most important expenses will be the promotion that is needed to tell both final customers and retailers that your business exists and that you have products that will meet their needs.

Establishment Stage Short Answer

The establishment stage in the business life cycle is one of the most difficult stages in the cycle, with a 33% chance of failure. One of the challenges they may face is difficulty with recieving bank loans. They say that they will be hoping to recieve 50% of the costs from bank loans, however, because they are only an establishing business with no previous experience, it would be difficult for the banks to trust them and give them the loan. Additionally, they must be prepared to make minimal or negative profit, as they have no pre-established consumer base that will purchase from them. Sales will be slow at first, and they must be certain to not interpret this as failure, as it takes time in order to move to the next stage of the business life cycle.

Maturity Stage and Response

• Features of the maturity stage

  • Product differentiation to remain competitive

  • Saturated customer market

    • ‘everyone has one already’

  • National/global

    • cut costs and find new markets

• Maturity characteristics

  • Sales continue to be profitable, but the market is saturated

  • Rate of growth of sales and profits levels out

  • Competitors may enter the market taking away some customers

  • Pricing competition becomes more severe

  • Monitoring of consumer satisfaction necessary to maintain customer and brand loyalty

  • A drop in investment requirements

  • Finance channeled into advertising and promotion, research, and development of product

• Maturity challenges

  • Could easily lose energy and enthusiasm

  • Sense of complacency

    • Managers may be slow to respond to market demands

  • More formal & professional approach to planning

  • Keep costs under control

  • Focus on being efficient to maintain profit margins

  • Leadership is crucial

    • Reduce red tape

    • Team approach

  • Incentive & training schemes to improve quality of production and efficiency

• refer to table on canvas page

Post-Maturity Stage and Response

Once the business reaches this final stage, it is faced with 3 outcomes:

1. Steady state

   1. Keep operating at the same level as maturity stage

2. Decline

   1. Falling sales and profits ultimately resulting in business failure

3. Renewal

   1. Increasing sales and profits due to new growth areas

• Renewal

  • Introduction of new products leads to increasing sales

  • Sell off any non-profitable assets

  • New acquisitions via takeover or merger

  • Discovery of new markets

  • Product diversification

  • May need more finance to research and develop new products

  • Restructuring costs will be high in the short term

  • Need for communication with employees to overcome resistance to change

• Steady State

  • Sales continue to be profitable, but market is saturated

  • Does not continue expenditure on research and development

  • Relies on marketing same products or replacements

    • Not new designs

  • Eventually becomes unstable:

    • Managers are slow to respond to changes in the market or business environment

  • Competitors enter with superior products or more efficient production methods

  • This eventually leads to decline

• Decline and Cessation

  • Loss of market share

  • Profits fall

  • Cash flow severely restricted

  • Products become obsolete

  • Difficult to raise finance because of risk of failure

  • Well qualified employees leave

  • SUppliers reluctant to extend credit, restricting amount of stock

  • Firm lurches from crisis to crisis

• Factors that contribute to business decline

  • Internal factors

    • Lack of experience

    • Inadequate planning

    • Lack of cashflow

    • Wrong market

  • External factors

    • Competition

    • Government policy

    • Natural disaster

    • Economic change

Business Decline and Cessation

• Factors that contribute to business decline

  • Failure to meet customers needs

  • Lack of demand for product

  • Failure to plan

  • Increased competition

  • Lack of adequate cash flow

  • Poor location

  • Lack of management skills

  • Uncontrolled growth

  • Failure to adapt to changes in external environment

  • Failure to price product correctly

  • Unfavourable economic conditions

  • Ignorance of existing competition

  • Ill-conceived business idea