Business Objectives, Ownership, Globalisation, and External Factors
Financial & Non-Financial Objectives
Financial Objectives: Targets related to financial performance, resources, or structure. Important in the private sector. These objectives are quantifiable and can be directly measured, providing a clear indication of the business's success in monetary terms.
Profit: Difference between total sales revenue and total costs. Can be reinvested into the business for expansion, research and development, or distributed to owners as dividends.
Profit Maximisation: Making as much profit as possible. This involves strategies to increase revenue and reduce costs, optimizing operational efficiency and pricing strategies.
Sales Revenue: Increasing volumes of products sold. Achieved through effective marketing, competitive pricing, and expanding the customer base.
Market Share: Proportion of a market controlled by a company, brand, or product. Increasing market share can lead to higher profitability and greater competitive advantage.
Financial Security: Ensuring the business can meet its financial obligations. Managing cash flow, maintaining adequate reserves, and securing financing are crucial for financial stability.
Non-Financial Objectives: Targets not directly connected to making money but contribute to the overall success and sustainability of the business. Common in the public and voluntary sectors, where the focus extends beyond mere profit.
Social: Providing reliable services that benefit the community, improving overall well-being, or minimizing environmental impact through sustainable practices.
Personal Satisfaction: Achieving a sense of fulfillment and pride in the work, which enhances motivation and productivity.
Challenge: Using and developing skills, solving complex problems, and fostering innovation within the organization.
Independence & Control: Making autonomous decisions without external interference, promoting agility and responsiveness to market changes.
SMART Objectives: Specific, Measurable, Achievable, Realistic, Time-specific. A framework to ensure objectives are well-defined and attainable, facilitating effective planning and monitoring.
Reasons for Changing Business Objectives
Internal Factors:
Business growth: As the business expands, objectives may shift towards managing increased complexity and sustaining growth.
New leadership: A change in leadership can bring new perspectives and priorities, leading to a re-evaluation of objectives.
Changing priorities: Internal shifts in focus, such as a greater emphasis on innovation or customer satisfaction, can alter objectives.
Business performance: Poor performance may necessitate a change in objectives to address underlying issues and improve results.
External Factors:
Market Conditions: Competition and market growth rates significantly influence business objectives.
Increased competition may shift objective from profit maximization to maintaining or increasing market share, requiring strategies to differentiate products or services.
Fast-growth markets encourage sales and profit maximization, allowing for aggressive expansion and investment.
Slowing market growth leads to a focus on market share, with emphasis on customer retention and competitive pricing.
Technology: New production technology impacts costs, efficiency and working conditions, influencing strategic objectives.
New technology may support a profit maximization objective as manufacturing costs are likely to fall as output rises, leading to higher profitability.
Legislation: New laws (e.g., environmental regulations, labor laws) increase business costs and emphasize social objectives.
New laws increase business costs and force the firm to focus on increasing sales volumes to offset expenses or invest in compliance measures.
Sole Traders & Partnerships
Sole Trader: A business with a single owner who makes all decisions and keeps all the profit, offering simplicity and direct control.
Advantages: Easy to set up with minimal regulatory requirements, complete control over all aspects of the business, simple tax arrangements with profits taxed as personal income.
Disadvantages: Unlimited liability exposing personal assets to business debts, limited access to finance restricting growth potential, limited skillset relying solely on the owner's expertise, long hours, and effort required and no business continuity.
Partnership: Two or more people joining to own a business, sharing responsibilities and resources.
Advantages: Shared responsibilities alleviating workload, relatively easy to set up compared to companies, more skills pooling diverse expertise, increased access to finance.
Disadvantages: Unlimited liability (unless limited liability partnership structure is formalized), potential for disputes arising from differences in opinion, and shared profits reducing individual earnings.
Deed of Partnership: States formal rights of each partner, outlining responsibilities, profit-sharing ratios, and dispute resolution mechanisms to provide a legal framework for the partnership.
Private & Public Limited Companies
Private Limited Company (Ltd): Owned by shareholders with limited liability, offering a balance between control and growth potential.
Advantages: Limited liability protecting personal assets, access to greater finance through share issuance, easy transfer of ownership, and business continuity ensuring long-term stability.
Disadvantages: More expensive to set up due to regulatory requirements, complex rules, annual financial reporting obligations, and less control for shareholders.
Public Limited Company (PLC): Sells shares publicly on the stock exchange, providing access to substantial capital but requiring greater regulatory compliance.
Advantages: Significant capital can be raised through public offerings, risks are spread among numerous shareholders, shares can be bought and sold easily facilitating liquidity, and high visibility enhancing brand recognition.
Disadvantages: Complex regulations imposing administrative burdens, expensive to set up due to legal and compliance costs, short-term financial focus driven by shareholder expectations, and risk of hostile takeovers.
Flotation: Selling shares on the stock exchange for the first time, also known as an Initial Public Offering (IPO), allowing the company to raise capital from public investors.
Public Corporations
Owned and controlled by the government, funded through tax revenue, and typically focused on providing essential public services.
Provide public services (healthcare, transport, broadcasting).
Benefits: Control of vital supplies, avoids duplication of services, saves jobs, and provides unprofitable services necessary for public welfare.
Drawbacks: Cost to government, inefficiency due to bureaucratic processes, political interference, and difficult to control due to complex organizational structures.
Business Size & Characteristics
Small Businesses: Employ fewer than 50 people, characterized by agility, local focus, and entrepreneurial spirit.
Characteristics: Provide goods/services locally/regionally catering to specific community needs. it is the most common business form.
Large Businesses: Employ 250 or more workers, characterized by complex organizational structures, economies of scale, and broader market reach.
*Characteristics of Businesses by Type:
Sole Trader: Has unlimited liability, and relies on the owner's savings coupled with their complete control where all profit goes to the owner.
Partnership: Has unlimited liability, utilizes partners' contributions to facilitate funding, has shared control, and profit gets shared by agreement.
Private Limited Company: Has limited liability, utilizes the owner's savings, entrepreneur appoints CEO, most profit to entrepreneur.
Public Limited Company: Has limited liability, shares sold on stock exchanges, directors manage while the profit is distributed to shareholders.
Other Forms of Business Organisation
Franchises: Franchisee buys rights to operate a business model from a franchisor, gaining access to established brands and support.
Advantages: Recognizable brand gaining access to immediate customer trust, product training which will enhance skills, equipment provided which will decrease initial investment, exclusive territory which will limit competition, and ongoing support.
Disadvantages: Fixed sum payment upfront fees, regular royalties ongoing percentage of revenue, inflated material costs impacting profit margins, lack of freedom in operational decisions, and strict standards imposed.
Social Enterprises: Primary purpose is creating social or environmental impact along with profit, emphasizing a triple bottom line approach.
Advantages: Good reputation enhancing brand image, attracts employees and customers who value ethical considerations, encourages rivals to improve practices, and financial support for causes.
Disadvantages: Media scrutiny exposing any inconsistencies, limited reinvestment funds impacting growth potential, and slower decision-making involving stakeholder consultations.
Multinational Companies (MNCs): Registered in one country but operates in different countries, leveraging global resources and markets.
Choosing Appropriate Business Ownership
Small Businesses:
Sole trader or partnership for low-risk, low start-up capital ventures needing flexibility which limits administrative burden.
Private limited company for high-risk or high start-up capital ventures requiring more legal protection.
Larger Businesses:
Private limited company with venture capitalists for growth utilizing external funding and expertise to scale operations.
Public limited company for significant capital through stock market flotation diversifying ownership and enhancing financial capacity.
Primary, Secondary & Tertiary Business Sectors
Primary Sector: Extraction of raw materials (farming, mining, fishing) which forms the foundation of the supply chain.
Secondary Sector: Processing raw materials and components (manufacturing) adds value through transformation and assembly.
Tertiary Sector: Provision of services (leisure, banking, hospitality) which caters to consumer needs and experiences.
Quaternary sector: Provision of knowledge-focused services related to IT technology, consultancy or research driving innovation and technological advancement
Factors Affecting Business Location
Proximity to market, labor, materials, and competition which minimizes transportation costs and maximizes access to resources.
Nature of business activity and infrastructure influencing operational efficiency and logistical feasibility.
Loyalty to initial communities fostering goodwill and social responsibility.
Impact of the Internet on Location Decisions
E-commerce reduces the need for high-profile premises enabling businesses to operate remotely and reduce overhead costs.
Considers cost and availability of labor, proximity to transport, and reliable IT infrastructure ensuring seamless online operations and customer service.
Legal Factors & Location
Laws can incentivize or deter businesses affecting investment decisions and operational strategies..
Less economically developed countries have fewer laws and lower costs attracting businesses seeking cost-effective solutions.
More economically developed countries have extensive laws and good infrastructure providing a stable and reliable business environment.
Trading Blocs facilitate trade and investment by countries who reduce trade barriers to promote trade within member states.
Globalisation
Economic integration of different countries. A process that increases interaction of people, cultures and economies.*Main drivers of globalisation:
Development in technology which will facilitate communication across large distances.
Improved transport networks which will make logistics more readily available
Deregulation removes many of the government controls on markets.
Government commitment that will encourage globalization and reduce barriers of entry
Market saturation which will force the business to export and grow into other markets.
Familiarity with global brands
Opportunities of Globalisation:
Large markets provide an ability for businesses to access more customers.
Economies of scale can be achieved as production and output increases because of the larger market, driving production advantages
Labor access provides specialization and can allow businesses to take advantage of specialization of labor and reduce the cost of labor
taxation benefits can include low tariffs or tax rates, encouraging the business to expand into the country.
Potential Problems and Risks of Globalisation:
*Increased Competition can force domestic firms to compete with international firms
*Increased need to develop a profitable niche where your firms specialize in a specific good
*Vulnerability to international takeovers
*Greater Risk from External Shocks stemming from the globalized integration of markets
Multinational Companies (MNCs)
Registered in one country, operations in others, and characterized by a global presence and complex organizational structure.
Advantages: Low costs that will increase profit, which also may be achieved by accessing local countries. High sales through access to more markets. Increased public perception, and bypass trade barriers enabling market access, and low tax liabilities due to regulatory arbitrage.
\*Impacts of Multinationals on Stackholders
<!-- -->
Negative Impacts
Local residents will be affected by the MNC by the environmental damage it may cause. The MNC could be paying minimal tax revenues.
Local Government may suffer from the lack of accountability to the countries in which they operate
National Government may suffer should the MNC use resources and leave to another country, which may cause unemploymen
Positive Impacts
MNCs provide training for their employees, improving their skills
The presence of MNCs in an economy encourages entrepreneurship as citizens' skills and motivation to succeed are increased
Local businesses grow and employ more workers to meet demand created by an MNC
Exchange Rates
Price of one currency in terms of another, influencing international trade and investment flows.
Appreciation: Currency value rises, increasing the purchasing power of domestic consumers.
Depreciation: Currency value falls, making exports more competitive and imports more expensive.
*Exporters benefit from currency depreciation, whilst importing businesses benefit from currency appreciation.