IBDP Business Management Mock Exam Revision Notes

Internal and External Factors Influencing Human Resource Planning

• Internal and External Factors:

  • Demographic change

  • Changes in labor mobility

  • Immigration

  • Flexitime

  • Gig economy

Demographic Change

• Definition: Changes in the characteristics and trends in a population affect the supply of human resources.

• Impact on Human Resource Supply:

  • High Net Birth Rate: Countries with a high net birth rate will have a larger supply of human resources in the long term.

  • Net Migration Rate:

    • Positive net migration (more immigrants than emigrants) increases the supply of human resources.

  • Retirement Age:

    • A later retirement age increases the available pool of human resources.

  • Women Entering/Returning to Workforce:

    • Boosts the supply of human resources, especially for part-time work.

  • Aging Population:

    • Countries with an aging population will have a shrinking supply of human resources long-term.

Impact of Aging Populations on HRM

• Increasing shortage in labor supply.

• Firms need to appoint and retain older employees, possibly past retirement age.

• Higher demand for women and part-time staff for workforce flexibility.

Change in Labour Mobility

• Definition: The extent to which labor can:

  • Move to different locations (geographical mobility).

  • Be flexible in changing to different jobs (occupational mobility).

Limitations on Occupational and Geographical Mobility

• Limitations on occupational mobility

  • The attributes of the worker (e.g., education, qualifications, skills, experience and training)

  • Employees that are highly specialised

• Limitations on geographical mobility

  • Ties to friends and family

  • Mature workers who tend to be less willing to take risks

  • Relocation costs

  • Fear of the unknown

  • Discrimination from employers on factors such as age, gender, religion or race

  • Costs of living in a new area

  • Language and cultural differences

Immigration

• Globalization encourages migration for work purposes.

• Firms, especially MNCs, need workforce planning with migration in mind.

• Reasons for Worker Migration:

  • Pay and Remuneration: Attractive pay, medical care, housing, relocation allowances, and low tax rates.

  • Employment Opportunities: Unemployment and low economic growth drive workers to seek jobs elsewhere; high-income countries may face labor shortages with economic growth.

  • Seasonal Factors: Some industries have peak and off-peak seasons (e.g., agriculture and winter sports).

  • Domestic Instability: Political instability, lack of security, and limited business opportunities.

  • Higher Standard of Living: Better lifestyle and career prospects.

Flexitime

• Definition: A system where staff determine their working hours, completing work by set deadlines.

• Forms of Flexitime:

  • Teleworking

  • Homeworking

Teleworking vs. Homeworking

• Teleworking: Working away from the office using electronic communication.

  • Example: salespeople of wineries commuting and visiting clients instead of working from the winery at the vineyard.

• Homeworking: Employees working from their own homes instead of an office.

Advantages and Disadvantages of Teleworking and Homeworking for Employees

• Advantages:

  • Job opportunities.

  • Suitable for family commitments.

  • Flexible working hours.

  • Reduced commuting time, money, and stress.

  • Autonomy in decision making.

  • Possible income tax allowances.

  • Increasingly affordable due to lower technology costs.

• Disadvantages:

  • Reliance on ICT software and hardware.

  • Workers often exceed contracted hours.

  • Social isolation and boredom.

  • Less job security and trade union representation.

  • Distractions at home.

  • Lack of authentic training and career development opportunities.

Advantages and Disadvantages of Teleworking and Homeworking for Employers

• Advantages:

  • Reduced overheads from renting prime locations.

  • Flexible and extended working hours for customers.

  • Adjustment for peak and off-peak trade.

  • Continuity of services from workers with dependents.

  • Lower rates of absenteeism.

  • Flexibility to deal with working time directives (laws).

• Disadvantages:

  • High set-up costs.

  • Tight recruitment processes needed to ensure self-motivation and initiative.

  • Difficult management, monitoring, and control.

  • Technological breakdowns can cause major disruptions.

  • Not always possible due to lack of space or security for sensitive data.

Gig Economy

• Definition: Labor markets with short-term, flexible, and temporary contracts.

• Gig workers and independent contractors provide services on-demand or on-call.

• Workers do not have permanent employment contracts.

Benefits and Limitations of the Gig Economy

• Benefits: Flexibility for workers, businesses, and consumers.

  • Workers can work for multiple employers.

  • Lower costs for businesses.

  • Contractors and freelancers make extra income.

  • More control of work-life balance (in theory).

• Limitations:

  • Lack of regular income, job security, and fringe benefits for workers.

  • Lack of clear professional career path or social support.

  • Independent contractors must file their own tax returns.

  • Burnout is common due to multiple jobs/contracts.

  • Risk to firm reputation from poor-quality outsourced services.

Cash Flow

• Definition: Cash flow (or working capital) refers to the cash or liquid assets available for the daily running of a business.

• Day-to-day expenditures include:

  • Utilities

  • Wages

  • Raw materials

• Firms need more cash flowing in than out to thrive.

The Working Capital Cycle

• Definition: The time difference between the firm paying cash for its costs of production and receiving cash from sales to customers.

• Example:

  • Firm pays cash for raw materials.

  • It takes 10 days for the raw materials to arrive.

  • Firm produces goods. Production time takes 30 days.

  • Goods are sold to customers for cash.

  • It takes 50 days to sell all goods.

  • Total time lag: 90 days

Liquidity

• Definition: How easily an asset can be turned into cash.

• Relatively Liquid Assets:

  • Usually current assets that convert quickly into cash.

  • Cash

  • Debtors

  • Stock of finished goods

• Relatively Illiquid Assets:

  • Usually fixed assets or stocks of raw materials.

  • Fixed assets

  • Stock of raw materials

Liquidity Crisis

• Definition: When there is insufficient cash in the working capital cycle.

• Occurs due to more cash flowing out than in.

Cash Flow and the Working Capital Cycle

• Insufficient Cash:

  • Liquidity crisis

  • Threat of insolvency

• Excess Cash:

  • Opportunity cost of not using cash to grow the business

• A firm should aim to have the right amount of cash for its working capital cycle.

Types of Organizations

• Sole traders

• Partnerships

• Privately held companies

• Publicly held companies

Profit-Based Organizations

• Revenue-generating businesses with profit objectives.

• Goals:

  • Make a profit.

  • Reward the owners with profits from the business.

  • Reinvest some profits for capital growth.

Sole Traders

• Owned by individuals running a personal business.

• Most common type; relatively easy to set up.

• Start-up capital from personal savings and borrowing.

• Sole traders have unlimited liability.

Sole Traders: Advantages and Disadvantages

• Advantages:

  • Few legal formalities

  • Profit taking

  • Being your own boss

  • Personalized service

  • Privacy

  • Quicker decision-making

• Disadvantages:

  • Unlimited liability

  • Limited sources of finance

  • High risks

  • Workload and stress

  • Limited economies of scale

  • Lack of continuity

Partnerships

• Owned by two or more persons (partners).

• At least one partner must have unlimited liability.

• Start-up finance pooled together by partners.

• A legal document known as a deed of partnership formalizes agreements such as how profits and losses are to be shared between partners.

Partnerships: Advantages and Disadvantages

• Advantages:

  • Financial strength

  • Specialization and division of labor

  • Financial privacy

  • Cost-effective

• Disadvantages:

  • Unlimited liability

  • A lack of continuity

  • Prolonged decision-making

  • Lack of harmony due to disputes/disagreements

Limited Liability Companies

• Owned by shareholders investing capital.

• Companies are incorporated businesses with limited liability.

• Treated as legal entities separate from owners.

• Two types: privately held and publicly held companies.

Privately Held Companies

• Shares owned by friends and/or family.

• Shares cannot be traded publicly on the stock exchange.

• Shareholders can only sell shares with prior permission from other shareholders.

• Typically, family businesses (e.g., Mars, Aldi, and IKEA).

Publicly Held Companies

• Can sell shares on the stock exchange.

• Shares held by the general public.

• No prior permission required for a shareholder to sell shares.

• Examples: Honda Motor Company, The Walt Disney Company, and Facebook Inc. (Meta).

Limited Liability Companies: Advantages and Disadvantages

• Advantages:

  • Raising finance

  • Limited liability

  • Continuity

  • Economies of scale

  • Productivity

  • Tax benefits

• Disadvantages:

  • Communication problems

  • Added complexities

  • Compliance costs

  • Disclosure of information

  • Bureaucracy

  • Loss of control

Marketing Mix

• The marketing mix consists of seven Ps to reflect the specific characteristics of services.

• The four core Ps are product, price, place and promotion.

The 7Ps of the Marketing Mix

• Product

  • The good or service offered by a business, including its features, design, quality, and branding.

• Price

  • The amount charged for the product, influenced by strategy, market demand, and cost structure.

• Place

  • The methods and locations used to distribute the product to customers, such as stores or online.

• Promotion

  • The communication techniques used to inform and persuade customers, including advertising and PR.

• People

  • All individuals involved in service delivery and customer interaction, such as employees or staff.

• Process

  • The systems and procedures used to deliver the product or service efficiently and effectively.

• Physical Evidence

  • The tangible cues that support the service or product, such as branding, packaging, or facilities.

Internal Economies and Diseconomies of Scale

• Economies vs. diseconomies of scale

Economies vs. Diseconomies of Scale

• Economies of Scale: Average costs of production decrease as the organization increases the size of its operations. It is the cost-reducing benefits enjoyed by firms engaged in large scale operations.

• Diseconomies of Scale: An organization becomes too large, causing productive inefficiencies that result in an increase in average costs of production. It is the cost disadvantages of growth when the business becomes too big.

Optimum Level of Output

• Average costs decrease as output rises to the optimum level due to greater efficiency.

• Costs increase due to inefficiencies when the organization becomes too large.

• The relationship can be represented graphically, with costs on the y-axis and output on the x-axis. There is an average total cost curve that initially decreases, reaching its minimum point at the optimal level of output then slopes upwards.

Internal Economies of Scale

• Economies of scale that occur inside the firm.

• They are within the firm’s control.

Types of Internal Economies of Scale

• Technical Economies:

  • Large firms can use sophisticated capital and machinery for mass production.

  • High fixed costs are spread over a huge scale of output.

  • Average Costs of Production \downarrow

• Financial Economies:

  • Large firms can borrow large sums of money at lower rates of interest because they are seen as less risky to financiers.

  • Costs of Borrowing Finance \downarrow

• Managerial Economies:

  • Large firms divide managerial roles by employing specialist managers.

  • Average Costs \downarrow due to higher productivity.

• Specialization Economies:

  • Result from division of labor of the workforce.

  • Specialists are responsible for a single part of the production process.

  • Average Costs \downarrow due to higher productivity.

• Marketing Economies:

  • Large firms benefit from selling in bulk.

  • High costs of advertising can be spread by large firms using the same marketing campaign across the world.

• Purchasing Economies: Large firms benefit from buying resources in bulk. Discounts are usually given to bulk purchases (bulk-buying).

• Risk-Bearing Economies: Conglomerates can spread fixed costs across a wide range of business operations. Unfavorable trading conditions for some products can be offset by more favorable trading conditions in their other products.

Examples of Internal Diseconomies of Scale

• Lack of control and coordination

• Poorer working relationships

• Lower productive efficiency from outsourcing

• Bureaucracy

• Complacency

External Economies and Diseconomies of Scale

• Types of external economies of scale

Types of External Economies of Scale

• Technological Progress:

  • Technological innovations increase productivity within an industry with significant cost savings.

  • Example: the internet revolutionizing business with e-commerce.

• Improved Transportation Networks:

  • Globalized transportation enables firms to import raw materials and finished goods manufactured at lower costs.

  • Increased convenience from improved logistical networks allows for faster deliveries at lower costs.

• Abundance of Skilled Labour:

  • Certain locations benefit from reputable education and training facilities.

  • Local businesses benefit from a suitable pool of educated and trained labor.

  • Reduces costs of recruitment and training.

• Regional Specialization:

  • Certain locations have established reputations for specializing in specific goods and services.

  • Firms in those locations benefit from access to specialist labor, sub-contractors, and suppliers.

  • Able to charge a premium price for products.

Examples of External Diseconomies of Scale

• Higher rents

• Local market conditions for pay and financial rewards

• Traffic congestion

• Context specific problems

Stakeholders

• What is a stakeholder?

What is a Stakeholder?

• A stakeholder is any individual, group, or organization with a direct interest in and/or is affected by the activities and performance of a business.

• They can be classified as internal or external stakeholders.

Internal Stakeholders

• These stakeholders are members of the organization. They have a direct interest in, and are affected by, the activities and performance of a business.

• Employees

• Managers and directors

• Shareholders

Employees

• Employees are likely to have an interest in the organization they work for.

• They tend to strive for improvements in:

  • Pay and other financial benefits

  • Working conditions

  • Job security

  • Opportunities for career progression

Managers and Directors

• Managers oversee daily operations.

• Directors are senior executives directing operations on behalf of shareholders.

• Primarily interested in:

  • Profit maximization

  • Job security and financial benefits

  • Long-term financial health of the company

Shareholders

• Shareholders are a powerful stakeholder group due to their voting rights.

• They have two main interests:

  • Maximize dividends

  • Achieve capital gain in the value of the shares

External Stakeholders

• These are stakeholders who do not form part of a business but have a direct interest in, and are affected by, the activities and performance of a business.

• Customers

• Suppliers

• Pressure groups

• Competitors

• Government

Customers

• Customer care is instrumental to the survival of a business.

• Their interests vary depending on the goods and/or services provided by the business.

• Generally interested in:

  • Quality of goods and services

  • Value for money

Suppliers

• Suppliers provide a business with stocks of raw materials needed for production.

• Their main interests are:

  • Clients who pay their bills on time

  • Regular contracts with clients

  • Good working relationships with clients

Financiers

• These are the financial institutions and individual investors who provide sources of finance for a firm.

• Financiers earn money by charging interest on the amount of money borrowed.

• Their interests include:

  • The ability of a firm to repay debts from generating sufficient profits

  • Establishing long-term relationships with firms in order to achieve subsequent earnings

Pressure Groups

• Pressure groups consist of individuals with a common interest who seek to place demands on organizations to influence a change in their behavior.

• Their interests in the business depend on the purpose of the pressure group.

Competitors

• These are rival businesses of an organization.

• Their interests in the business include:

  • Innovation that arises from rivalry

  • Responding to competitive threats

  • Performance benchmarking

Corporate Social Responsibility (CSR)

• Corporate social responsibility

Corporate Social Responsibility

• Corporate social responsibility (CSR) is the conscientious consideration of ethical and environmental practice related to business activity.

• CSR policies and practices need regular review in order to adapt to evolving attitudes and expectations of different markets/countries.

• CSR practices can provide firms with competitive advantages and long- term sustainability.

Examples of CSR Policies

• Provide accurate product labeling

• Be conscious of impacts to the environment.

• Adhere to fair employment practises

• Contribute to communities via volunteer or charitable work

External Growth Methods

• Mergers and acquisitions (M&As)

• Takeovers

• Joint ventures (JVs)

• Strategic alliances (SAs)

• Franchising

Mergers and Acquisitions (M&As)

• Mergers: Two firms agree to form a new company with its own legal identity.

• Acquisitions: A company buys a controlling interest in another firm with the permission and agreement of its board of directors.

Benefits and Drawbacks of M&As

• Benefits:

  • Greater market share

  • Economies of scale

  • Synergy

  • Survival

  • Diversification

  • Gain entry into new markets

• Drawbacks:

  • Redundancies

  • Conflict

  • Culture clash

  • Loss of control

  • Diseconomies of scale

  • Regulatory problems

Takeovers

• Takeovers occur when a company purchases a controlling stake in another company without the permission and agreement of the company or board of directors. They are also known as hostile takeovers.

• Example: Elon Musk's offer to takeover Twitter.

Joint Ventures (JVs)

• Two or more businesses split the costs, risks, control, and rewards of a business project.

• The parties agree to set up a new legal entity.

Strategic Alliances (SAs)

• Two or more businesses cooperate in a business venture for mutual benefit.

• The firms in the SA share the costs of product development, marketing, and operations.

• SA firms remain independent organizations.

Benefits and Drawbacks of JVs and SAs

• Benefits:

  • Synergy

  • Spreading costs and risks

  • Entry to new/foreign markets

  • Relatively cheap

  • Competitive advantages

  • Exploitation of local knowledge

  • Relatively high success rate

• Drawbacks:

  • Rely heavily on goodwill and resources of their counterparts

  • Enormous expenditure on brand development

  • Possible culture clashes

Franchising

• A form of business ownership where a person or business buys a license to trade using another firm’s name, logos, brands and trademarks.

• The agreement is between the franchisor (firm selling the license) and the franchisee (entrepreneur buying the license).

Benefits of Franchising for Franchisors and Franchisees

• Franchisors:

  • Cheaper and faster than internal growth

  • Enter new local and international markets

  • Growth without incurring day-to-day running costs

  • Income from royalty payments

  • Franchisees are more motivated than salaried managers

• Franchisees:

  • Relatively low risk

  • Relatively lower start-up costs

  • Training and advice on financial management

  • Large scale advertising performed by franchisor

  • Greater likelihood of success due to local market insights

Drawbacks of Franchising for Franchisors and Franchisees

• Franchisors:

  • Risk damage to brand name if franchisees are unsuccessful

  • Monitoring quality standards or franchisees can be difficult

  • Slower growth method than M&As

• Franchisees:

  • Stifled creativity due to many franchisor rules and requirements

  • Can be very expensive to buy a franchise with no guarantee of a return on investment

  • Significant percentage of revenues paid to franchisor