UNIT ONE 

BASICS

==What are business needs?==

• Capital
• labor
• land
• enterprise

$Adding value$ = The difference between the price of the finished product and the cost of the inputs involved in making it.

$Basic economic problem$ = the world has limited—or scarce—resources to meet seemingly unlimited wants

==Techniques to adding value to products:==

• Branding
• Design
• Selling point
• Quality
• Convenience

MNCs

@@1) Multi-national companies@@ @@(MNCs)@@

Impact of MNCs on national economy:

• Good for employment and GDP growth
• Balance of payments
• Technology and skill transfer
• Tax revenues and transfer pricing

$**Disadvantages of MNCs**$

• Exploitation - underpaid sweatshops factory workers
• Pollution in the environment
• Bribery - strong MNCs can bribe small/weak governments
• Workers are untrained.

DYNAMIC ENVIRONMENT

Transformation process

Businesses are involved in the transformation process by taking in inputs and creating goods and services from them (outputs).

Businesses need to decide on what they want to deliver to their customers (outputs) and meet their needs and wants.

Dynamic Environment

External factors affecting the Business:

• Political and legal - new laws can affect the marketing of products or how much employees are paid
• Economic - Changes in value of currency affects cost of imports. Interest rates affect borrowing.
• Social - increase in population can see a change in demand as well as a change in customer needs.
• Technological - Changes in technology affect cost increase and training staff.

Continuous changes affecting the business:

• Demand , costs and availability and the transformation process.

==Success can be defined as being more competitive than rivals.==

%%Better value can be achieved depending on:%%

• Outperforming competition by offering either more benefits of or the same for cheaper.
• Prices being charged meet the value and are relative to competition.

Failure

%%Reasons for failing:%%

• lack of competitiveness
• Cost of borrowing increasing (interest rates)
• Poor choice of inputs and outputs along with mismanagement of transformation process.
• Lack of management experience
• Lack of customer service
• Not dealing with employees correctly
• Lack of market power
• No support from suppliers.

ENTERPRISE

$**Entrepreneur**$: A person who organizes, operates and assumer the risk for a business venture.

$Intrapreneur$: Are people within an established business who thank and act like entrepreneurs.

• Introduction of rules and policies may impact an innovation as the concern may turn to controlling and maintaining the business.
• Job empowerment to challenge the status quo - how can they help keep the business moving forward remaining competitive.

%%5 Main qualities:%%

• determination and drive
• Planning
• making decision/thinking ahead
• Spotting opportunity/risk taking

%%Barriers to entrepreneurship:%%

• Culture of failure may not be accepted in some regions - difficult to find financial backers for another venture
• Governments may want to control certain services or goods creating barriers to entry - favoring state provisions
• Regulations may impact time and discourage entrepreneurs from entering the market
• Banks may be wary and prefer not to take the risk of supporting new start-ups which do not have any credibility.
• Must be proactive in decision making.

^^RISK AND REWARD/UNCERTAINTY^^

Government involvement:

• Entrepreneurs increase the employment rates by providing job opportunities
• They pay taxes
• Customers get more choice from added competition

BUSINESS PLANNING

%%Business Plan:%% A written document setting out in detail how a business is going to achieve its goals.

• lays out a written plan from a marketing, financial and operational viewpoint to anticipate potential barriers and opportunities.

^^Contents of a business plan: ^^

• Executive summary
• the business opportunities and idea
• buying and production
• financial forecast
• business objective and aims
• the positioning or market
• promotional strategies
• premises and equipment

^^Why might a business re-assess their business plan in the future?^^

• Exchange rates fluctuating
• Legislation and policies
• Change in trends
• Products becoming obsolete
• Change in interest rates

^^Relevance of a business plan: ^^

• Clear aims and objectives
• Provide an action plan
• Shows potential problems
• give the business a clear direction
• Adds credibility

$Sole trader$

• A business organization which has a single owner but can employ as many people as they want to work for them.

$Partnerships$

• A business Organization that is usually owned by between 2-20 people where responsibility and profit is shared.
• A deed of partnerships should be formed - a legal document that states the rights of the partners should a dispute occur.

$Co-operatives$

• A form of business which is run and owned by the members for the members
• ^^Employee co-operative -^^ each employee can have a say on decisions
• Shares cannot be sold so raising finance can be limited.
• %%Community co-operative%% - members of the community set up to provide services such as a post office
• $Retail co-operatives$ - independent retailers join together under one brand name - developing buying power over suppliers (bulk purchase) and sharing market costs.

$Social enterprise$

• A business that trades with the objective of improving human or environmental well being.
• Will not have profit as a main objective and some will not consider it at all (charities , local sports clubs)
• Aims benefit communities and society

$Joint Venture$

• When businesses collaborate on a project together without formally joining their activities together.
• It is becoming more common for businesses to join with local companies when trying to enter a foreign market - ease of distribution and market entry.

$Online Businesses$

• A business that uses the global communications infrastructure of the internet as a trading base.
• Low start up costs, 24 hours trading , advertising can be another source of income.

%%Why has there been a growth in the use of online businesses in recent time?%% Due to Covid and quarantine people have been unable to leave their homes to buy things as it was the most convenient option, this increased the use of online apps for things like groceries and laundry. Additionally advertising and promoting online influencers also caused a large increase in growth, due to many more people using the internet.

$Franchise$

• A business model in which a business (the franchisor) allows another operator (the franchisee) to trade under their name in return for a fee.

Companies

A company is a business organization which has it’s own legal identity and which has limited liability.

• Setting up a company helps avoid any problems that can arise when being a sole trader or partnership.
• In order to do this documents must be filed with relevant organization. Companies are owned by shareholders - representing some ownership of the business. Companies can also own their own assets and resources.

$Changing legal structure$

• When wanting to develop the business or raise funds to do so, it is extremely common to opt in changing the structure. Benefiting from sale of shares and change in liability.
• Business must then opt in to have yearly accounts checked by auditors. Publish accounts annually.

Private limited company

• Also known as an LTD
• Owned by shareholders with the owners putting restriction and conditions in place for future sale of shares.
• Shares can then only be sold privately, typically are family owned and are limited to other family members.
• Sale of shares helps raise finance, percentage of the profits expected to be paid in dividends.

Public limited company

• Owned by shareholders but without restrictions on sales.
• Advertised in order to raise finances through share capital
• Benefit from economies of scale due to being a larger business
• Complex accounting and reporting due to conditions of documentation requirements
• Easier to attract investment due to possible brand names and image
• Risk of hostile takeover
• Percentage of dividends are spread out across shareholders
• Making decisions may not be easy due to clashes.

Economic factors

Primary Sector

• Primary sector activities directly depend on the environment as it refers to the utilization of natural resources.
• This includes the production of raw material and basic foods - with activities ranging from agriculture to farming and mining.
• Important sector for developing economies - producing primary products will give them a comparative advantage.
• Making this an important source of economic development - worse off if they are unable to exploit.

Secondary goods

• The industry dealing with the raw materials and effectively converting them into finished products
• Telecommunication, automobile and steel production are all types of businesses involved in this sector
• Secondary industries play vital role in encouraging growth in countries and developing the economy - exporting the manufactured goods can generate GDP growth
• Countries with flourishing secondary industries are considered developed countries
• Leads to better social mobility, encouraging prosperity and growth.

Tertiary sector

• Refers to business providing intangible services - transportation, retail , financial services.
• Considered the largest in developed economies in terms of employment and the value of the output.

  %%Importance of the tertiary sector are as follows:%%

• Delivering public services - providing essential services
• Enhancing employment - career options increased even for unskilled and uneducated.
• Positive experiences - promoting wellness and emotional value.
• Economic growth - correlation with growth in service sector.

Quaternary

• Considered a subset of the tertiary sector focusing on developing the information, knowledge and scientific base.
• Providing opportunities to reflect on specialized knowledge undertaken by experts offsetting their knowledge to other services and industries.
• Provide access to scientists, researcher and developers to explore/identify new invention or discoveries - allowing for lifestyles
• E.g. Computer programmers , scientists

Public and Private sectors

• Government owned businesses are those in the public sector - schools, bus/rail links, electricity, water, health care.
• Business owned by individuals are found in the private sector - health care, schools, barber shop, retail stores.
• Nationalization occurs when the government takes over a business. Similarly privatization occurs when the government sell one of its organizations.

  ^^Governments will look to run the following organizations:^^

• Strategic importance

^^Benefits of private sectors :^^

• Will provide quality products demanded by customers.
• Resources are often efficiently used - lack of waste.

==Benefits of public sectors:==

• Provide products which are most beneficial to society - less focus on profit.
• Customers are main priority - exploitation is limited.

Measuring business size

^^A business can be measure in a number of ways:^^

• Revenue of the business
• Number of employees
• Number of stores
• Value of assets
• Market share
• Market capitalization

Useful to measure as governments may wish to assist smaller firms, customers may only trust bigger businesses, investors may want to make competitor comparisons.

@@Number of employees@@

• most universal and simplest measure to go by - clear and easy to understand
• If a business employs many employees it will be clear to see it is a large business.
• However online businesses may not need to hire many employees.
• Depending on the equipment of the business the number of employees does not always accurately measure it’s size.

@@Revenue@@

• A good way to measure size between companies in the same industry
• However comparing this between different industries and levels of production it becomes inaccurate.
• $revenue = price x quantity$

@@Market share:@@

• Revenue is used to in calculating market share
• High market share will indicate being amongst leaders in the market and comparatively high - relative measure
• However, if market size is small then a high market share will not indicate a large organization
• $market share = total sales of business/total sales of industry x 100$

@@Capital employed@@

• Capital used by a business to generate profits
• The larger the business the greater the value of capital needed for long term investment
• can be used when looking at same/similar industries
• more difficult when looking at different industries
• e.g. a car manufacturer would need more expensive automated machines compared to a hairdresser
• $formula = total assets - current liabilities$

@@Market capitalization@@

• Measuring company worth through on the open market through sales of shares.
• Why might this not be a stable method to measure the size of the business?
• Market caps can be inflated by the market and not represent reality
• Sudden dips in the market could make it seem much smaller than even if it is making the same revenue or has same value of assets.
• Market cap is mainly a perception of its future prospect - reflects what investors are willing to pay
• $formula = current share price x total shares issued$

@@Problems@@

• The sector of the business will largely determine the best way to measure the size e.g. the NHS might measure size through employees as no profit is made.
• Essentially the best method depends on what needs to be established
• A business may seem large through one method but comparatively small by another
• No real definition of small, medium or large - universally decided through number of employees.

%%Advantages in being small%%

• easy to set up.
• can be creative as communication is more intimate.
• flexibility is often common and decisions are made quickly as there are not many people to consult with.
• customers will benefit from quality focused on market demands and needs.

@@Disadvantages of being small@@

• experience can be an issue when dealing with situations
• raising finance is difficult
• establishing yourself within a competitive environment
• Unable to adapt to change in time
• Lack of power in market

Internal growth / organic growth

%%Developing you business within this can be done in different ways:%%

• Developing new products
• Innovation of existing products
• Growth of sales in current market - enhance branding and promotion

%%Benefits :%%

• retain control over the business
• costs are reduced as you don’t need to agree to mergers or partnerships

External growth

Done by mergers or take overs

• Mergers occur when two businesses or more mutually agree to join together
• Takeovers occur when one business decides to unilaterally acquire another

Takeovers happen in two ways:

• friendly : majority of the shares are bought in order to help the business and directors will advise shareholders not to resist.
• Hostile : Directors will advice current shareholders to resist and prevent the sales of majority shares.

Stake holder integration

• Stakeholders will be largely affected by both types of integration and the precise effect will be dependent on the nature and success of the deal.
• Investors : All deals are likely to cost money but higher returns are possible if the deal is successful.
• Managers: Duplication of roles is coming in a merger or takeover and therefore this can result in one losing their position.
• Suppliers : Suppliers could benefit their business may increase. However, bigger businesses are likely to have more power.

Business objectives

$**Objectives**$

• An objective is a target which is measurable and has given timescale of what it wants to achieve.

Each business will have objectives, giving managers information to set department targets.

Objectives are important as they give direction and set out expected achievements to measure progress.

Provides focus and allows employees to make informed decisions

Individuals may also be given targets to help meet objectives

The setting of objectives allows co-ordination of business activities.

$**Private sector**$

• Profit and maximization occurs when difference between sales and costs are at it’s greatest level.
• Maximization is focused on when aiming to satisfy shareholders’ desire for dividends.
• Some firms set objectives focused on minimum profit in order to utilize resources elsewhere - focus on other objectives
• Growth objective are seen as vital for a business to survive - ability to exploit and control market position.
• Longer term objective as profits are more sustainable providing greater dividends.
• Greater salaries and more job security for employees
• Growth objectives may often be quantified focusing on sales figures and market share.
• Cash flow is the movement of cash in and out of the business over a period of time - a vital element of success and essential for businesses
• This is a key objective for businesses with long cash cycles - time elapsed between outflow and inflow
• The objectives will need to focus on improving the cash of the business
• Shortage of cash can result in pull back from suppliers and possible halt in trading - can’t pay debts on time.

Public sector

• Public sector objectives focus on developing and supporting the people
• A major objective of a public sector business would be to provide a service to the community
• Public sector business will still have financial objectives, however, they will focus less on profit
• Rather they aim to cover the costs and reinvest profits to improve products
• Important for the people and economy - lowers crime - satisfied society

Social Enterprises

• Focus on social and ethical objectives to mainly benefit people and communities.

Three main aims:

• Economic - to make profit to re-invest back and provide owners some return
• Social - providing jobs and services to local communities / disadvantaged areas
• Environmental - protecting the environment whilst managing the business in an environmentally sustainable way
• Have become an important today with consumers pushing ethics and the environment as a main importance when interacting with a busines.