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Business in Contemporary Society

Business in Contemporary Society. Higher/ Int 2 Business Management Session 2013/2014. Performance criteria . consider different types of business and different organisational objectives in the analysis explain the influence of stakeholders give reasons for conclusions reached

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Business in Contemporary Society

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  1. Business in Contemporary Society Higher/Int 2 Business Management Session 2013/2014

  2. Performance criteria • consider different types of business and different organisational objectives in the analysis • explain the influence of stakeholders • give reasons for conclusions reached • use relevant concepts from business management in the analysis

  3. Goods & Services Business Activity • Any activity which results in the provision of goods/services which satisfy human wants Wants Needs Capital Goods Consumer Goods Non-Durable Durable

  4. Terms • Production: refers to the making of goods to be sold or move to the next stage • Consumption: refers to the purchasing of goods/services • Needs: essential for survival • Wants: what people demand after needs are satisfied

  5. Wealth Creation • The 4 Factors of Production are combined together to produce an output • Land – natural resources • Labour – workforce • Capital – equipment and money invested • Enterprise – the entrepreneur (more later) • At each stage of production value is added with each new ingredient therefore wealth is created • Goods/Services are then sold in markets.

  6. The Cycle of Business WANTS IDENTIFICATION PRODUCTION CONSUMPTION

  7. Sectors of Industrial Activity Industrial Revolution De-Industrialisation

  8. Activities • Activity No. 1: Sectors of Industry • Activity No. 7: Class Careers

  9. Types of Business Organisations(Private Sector) – Sole Trader • Advantages • Easy to set up • Owner keeps profits • Owner decides hours to work • Owner makes all decisions • Disadvantages • No one to share responsibility, workload or problems • Difficult to obtain finance • Unlimited liability

  10. Types of Business Organisations(Private Sector) – Partnership • Advantages • Workload responsibilities shared • Partner experience/skills • Easier to obtain finance • Shared risks/decisions • Disadvantages • Disagreements • Unlimited liability • Profits are split • Legal agreement required

  11. Types of Business Organisations(Private Sector) – Ltd • Advantages • Limited liability • Responsibility/risks shared • Privacy retained: no accounts published • Access to finance improved • Disadvantages • Complicated to setup • Rules and regulations of Companies Act

  12. Types of Business Organisations(Private Sector) – Plc • Advantages • Limited liability • Access to finance improved • Economies of Scale possible • Disadvantages • Rules and regulations of Companies Act • Annual Accounts published • No control over ownership £50,000 investment

  13. Multinationals: Benefits • Taxation or Grant incentives • Lower wage rates • Higher skilled workforce • Legislation (relaxed) • Rate of Corporation Tax • Can operate competitively (locally) • Increased Market Share • Save on costs of transportation • Avoiding Trade Barriers • Selling Globally (without licenses)

  14. Multinationals: Costs • Legislation may be too restrictive • Local currency may be weak (converting profits back) • Lack of technical expertise • Poor infrastructure • Cultural difficulties • Political Instability • Exploitation (eg low wages) • Forcing local businesses out • Major functions remain at HQ usually – close a subsidiary

  15. Activities • Activity No. 2: Types of Business Organisation • Hall, Jones and Raffo: Chapter 6 • Question 1: Sole Trader p43 • Question 2: Partnership p44 • Question 3: Limited Company p46

  16. Franchises • A person who starts a business and provides a product or service supplied by another business is known as a franchisee and operates a business known as a franchise • The franchisee is allowed to use the franchisor’s business name and sell its products

  17. SPAR Franchise SPAR is a franchised Convenience store. It was founded in the Netherlands as a voluntary chain of grocers under the name "De Spar". Secure cooperation between independent wholesalers and retailers as a response to the emergence of grocery chains in Europe. "DESPAR" is the acronym for the Dutch sentence "Door Eendrachtig Samenwerken Profiteren Allen Regelmatig" which translates into "We all benefit from joint cooperation". The symbol of the fir tree, SPAR in Dutch, to identify the organization and it became the SPAR logo.

  18. The Franchisor

  19. The Franchisee

  20. Activities • Activity No. 8: McDonalds • Case Study: McDonalds (Server) • www.whichfranchise.com • www.franchiseexpo.co.uk • www.franchisedirect.co.uk • Short investigation and report into different franchises available including cost of initial investment

  21. The Public Sector • Managed by the government on behalf of the taxpayer who owns them • Funded through taxation • Aims: • Provide services • Improve communities • Act in best interests of society

  22. Types of Public Sector Organisations

  23. Privatisation • Governments sold these companies because: • Huge amounts of income for the Treasury • Some public corporations were poorly managed and not profitable • Wanted to increase share ownership and make public interested in the success of companies/the economy • However: • Public corporations were often sold off too cheaply • Privatisation has not always led to greater competition

  24. Contracting Out • Examples are refuse collection and school meals • Firms are invited to submit bids (competitive tendering) to provide these services • Cost effective? Private Sector organisations have an incentive to keep costs low • See Extra Note for more detail: also appears in Growth section

  25. Voluntary Organisations • Managed and run by volunteers: • no financial gain • they usually have an interest in the organisation • Examples: • Scouts • Girl Guides • Youth and Sports Clubs • Finance • Donations • Membership fees

  26. Charities Charities Commission keep a register of charities “Charitable Status’ means exemption from paying VAT Can ‘Gift Aid’ • Charity? • Relieve poverty • Advance education • Advance religion • Carry out activities beneficial to the community • Examples: • Children in Need • Red Cross • RSPB • Finance • Donations • Government and lottery funding • Selling goods • Fundraising events

  27. Activities • Activity No. 3: Contracting Out • Activity No. 4: Objectives (thoughts before next section)

  28. Objectives • Targets or Goals • Required so that a measurement of success can be made • Make decision to achieve goals eg: objective = expand overseas action = find location; recruit staff; market products Remember objectives can change over time

  29. Examples of Objectives Private Sector Objectives • Survive • Maximise profit • Maximise sales • Market share increase • Become market leader • Grow • High quality product • Managerial Objectives Voluntary Sector Objectives • Provide a service • Help those in need • Raise money • Efficient use of money • Socially responsible What about satisficing?

  30. Higher Level: ObjectivesIdentify vs Describe

  31. Entrepreneur • Have and develop a business idea • Willing to take risks • Known and associated with innovation • Combine the factors of production • Use their initiative to make decisions and solve problems • TASK: Watch video and list the traits of successful entrepreneurs

  32. StakeholdersHave an interest in and stand to be affected by the success or failure of an organisation Internal: • Shareholders/Owners • Managers • Employees External: • Suppliers • Customers • Banks • Central/Local Government • Local Community • Taxpayers • Donors (Charities) • Community (Society) Ensure that you know the interests and influences

  33. Activities • Select 3 organisations and explain “What is my interest and influence?” • Activity No. 5: Conflict between stakeholders

  34. Sources of FinanceCan you describe the following? Government Grant Bank Loan Leasing Share Issue Remember there are others – for a recap check your finance notes Mortgage Bank Overdraft Retained Profits

  35. Sources of Assistance Local Authorities Local Enterprise Agencies Business Gateway Careers Scotland • Advice will be on starting up; business plans; recording financial transactions; payroll and taxation • Some organisations may be able to give business financial support through a grant or loan HM Revenue and Customs Banks Prince’s Trust

  36. Why Grow? • Increase sales/profit and therefore returns for owner(s) • Increase market share or become market leader • To take advantage of economies of scale • To reduce the risk of failure • To strengthen brand name

  37. Internal Growth • Increasing number of stores • Selling new products • Entering new markets • Employing more staff (demand)

  38. External Growth • When two businesses come together to form one business: • Merger: • Takeover:

  39. Integration • Combining businesses in order to become larger and more powerful • Equal terms = merger • Loss of identity = takeover • Takeovers can be friendly, when it is the best way to survive or hostile when a predatory firm swallows up another one in order to gain market share or asset-stripping

  40. Horizontal Integration • Combining two firms at the same stage of production: • Eliminate competition • Increase market share • Achieve economies of scale • Acquire the assets of the other firm • More secure from hostile takeover bids

  41. Vertical Integration • Backwards Vertical: take over a firm at an earlier stage • eg jam manufacturer taking over a farm • Availability and quality of products ensured • Forwards Vertical: take over a firm at a later stage • eg cheese manufacturer taking over a local delicatessens • Control of distribution outlets gained Eliminates middleman and his profit Gives the firm greater economies of scale Allows the firm to link processes more easily

  42. Other Methods of Integration • Conglomerate: • Two firms producing completely different goods from each other joining together • Diversification results with reduced risk eg one firm/product failing; seasonal changes; acquire assets of other company • De-merger: • Splitting up the conglomerate so that its subsidiaries become companies themselves • Divestment: • Business sells some of its assets or part of its company • The part sold might not be performing well • Can raise finance to focus on core activity expansion BT Cellnet, was hived off as a separate business named "mmO2".

  43. Management buy-out/buy-in • A team of managers get together and buy an existing company from its owners • Large bank loans will be involved • Buy-out: managers come from within • Buy-in: managers come from outside

  44. Congratulations You have completed Business in Contemporary Society in Higher/Int 2 Business Management

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