1. Introduction to Business Flashcards

Question

describe the importance of two external stakeholders

Answer 1

External stakeholders could be: * Suppliers – the local business in particular and coffee suppliers. The business relies on the quality of these products * Local craftsmen – can be considered different from suppliers * Customers – this is in the service industry and customers are critical. Word-of-mouth is so important in this industry and these will tend to be influential people * Banks, etc – unlikely to be important as the business does not use external finance * The government – very important for regulations such as H&S. Also collects taxes so has an impact on profits. * Local community – Utopia provides work, has focus on local suppliers * Pressure groups/media – no obvious importance although bad publicity to be avoided * Competitors are allowed as external stakeholders

Answer 2

New market eg high income earners technological advancements they ca learn from production costs new market and new profit New expertise from german workers however kinda 3Cs stiff competition governement taxes high risk due to new country and no experience

Answer 3

Option 1: Market development Arguments for: Lower risk in Ansoff Increased profit in this new market The old market may be reaching its decline in the product lifecycle Arguments against: No experience of new market making it risky. needs market reseach and may be expensive Difficult to enter the new market due to maybe competition or barriers of enrty

Answer 4

Option 2: Diversification Arguments for: Existing product may go into decline phase of product life cycle. Rapidly growing and new market. Arguments against: No experience. Higher risk in Ansoff. needslots of market research thus may be expensive stiffcompetition

Answer 5

current product could be at the end of product lifecycle New market wider reach increased profit however tough compettion barriers to entry expensive market reaserch high risk on ansoff matrix If BM diversifies into specialist food for cats, it will open up to a larger and growing new market. The demand for cats is increasing, BM could also take advantage of its brand image as customers already know BM’s high quality. BM’s excellent brand image is an asset that can be capitalized in the development of new specialist food for cats. Vets who already recommend BM’s dog food would presumably recommend BM’s specialist cat food. In addition, BM has experience in developing new products. Even if the costs of building its own research facilities are high, BM could get the necessary finance by becoming a private limited company. However, introducing a new product into an existing market (Product Development) is a risky move. However, BM has the know-how of producing and selling specialist dog food. If BM becomes a private limited company to get the necessary finance, ownership will be diluted. Dr. Jones and Dr. Morris could lose some control of their business as decisions will have to be shared. BM’s current focus on quality could be compromised if the new partners prioritize profit maximization. What is more, the finance raised through the private limited company may not be enough to fund BM’s research facilities and the warehouse that will need refurbishing to stock more products. N.B. With reference to Ansoff, cat owners might be considered a different market to dog owners hence Market Development. As an alternative BM could introduce a new channel of distribution for the specialist dog food. A two intermediary distribution channel is one that includes a wholesaler that buys the goods from the producer and sells to the retailers. So far, BM dog food was only distributed through veterinarians and large pet shops and BM food was not available for customers in certain areas. A two intermediary distribution channel that includes a larger supermarket chain, a wholesaler and many small pet shops, will enable BM to reach a larger customer base. Now, potential customers in different areas will be able to buy BM. BM will still pay for transport costs to the delivery to veterinarians and large pet shops, but they will not have to add transport costs to distribute to other small retailers around the country as the wholesaler will pay for transport costs. In addition, the wholesaler and the supermarket chain could store the food and help BM to reduce stocks. This could be very convenient for BM as it would not need to refurbish the warehouse. However, a major disadvantage is that BM‘s selling price will be more expensive to final customers as a wholesaler is introduced. BM’s price is probably already high and a higher markup could lead to a very high price to final customers. Alternatively, BM could accept reduced profit margins and keep the price stable.

Answer 6

DELAYING PAYMENT TO SUPPLIERS CUTTING ADVERTISING AND PROMOTIONAL COSTS LAY-OFF SOME WORKERS However, destroying supppier to business relationship However, future demand may fall if LB is not promoted effectively. However this risks losing the services and know-how of key staff, who may not return in the high-season. lower-risk strategy Negative cash outflows could be reduced by delaying payment to suppliers one can cut other overhead spending such as advertising or promotion costs. These costs will reduce payments without affecting the quality of the service provided. lay-off some hotel staff or ask them to switch to part-time working. However, destroying supppier to business relationship However, future demand may fall if LB is not promoted effectively. However this risks losing the services and know-how of key staff, who may not return in the high-season.

Answer 7

Proposal 2 high risk tough competition no experience expensive market research however current proudct may be reaching decline stage in product lifecylce new market means more reach may be profitable On the other hand, Rose believes that LB’s cash flow problems are due to low capacity utilization in winter. She has proposed to attract a new segment of customers. If new business customers come in winter, cash inflows will increase. However, to attract these customers, LB will need to build new facilities, such as a convention centre or a gymnasium, to cater for the needs of this particular market segment. This would involve a significant amount of finance that LB does not have. LB could try to find external finance, such as a long-term loan, equity finance or a venture capitalist. However, these alternatives seem unlikely for LB in the short term. All of them take time to be found. Bank loans are expensive and LB may not have enough assets to present as collateral. Floating the company could be quite expensive for a family-owned business. Venture capitalists are not easy to find, particularly if the business is not a promise of extraordinary profits. LB will need to conduct extensive market research around the new market segment and currently this will increase outflows at a time when monthly cash flows are negative

Answer 8

CSR is the decision/attempt by a business to take responsibility for their action/activities by considering the interests of the community. and the impact on a wide range of stakeholders in society. The business accepts the moral and legal obligations to society, not just to investors, that result from its operation.

Answer 9

CSR is the decision/attempt by a business to take responsibility for their action/activities by considering the interests of and the impact on a wide range of stakeholders in society. The business accepts the moral and legal obligations to society, not just to investors, that result from its operation. Brand image increasing sales increased employee motivation reducing labour turnover. however its expensive less competitve advantage eg giving workers leavereduces productivity REDUCECONSUMER DEMAN IF INCREASED PRICE IS PASSED ON TO CONSUMERS

Answer 10

Lean production refers to a set of strategies to reduce waste in the production process. The principal methods of lean production are: continuous improvement (kaizen) Meaning ‘change for the better’ in Japanese, kaizen is both a process and a philosophy. It involves businesses holding regular, scheduled meetings where staff are invited to give their opinions and suggest improvements. just-in-time (JIT) production Just-in-time production means that resources are delivered just before they are needed, reducing the need to store inventory (stock). it aims to minimise costs by reducing or even eliminating the stock (inventory) being held by a company.

Answer 11

Outsourcing (subcontracting) involves a business hiring an external company to carry out a task that it could do itself. Advantages; cost of production is expensive and this cost can be passed on to the subcontractor. If there is a downturn in demand, the company can simply end its contract with the subcontractor without having to worry about staff redundancy costs. However; loss of control Some of the possible arguments for option 2: With outsourcing, KA should be able to satisfy the growing demand. The excellent quality should enable KA to differentiate itself in a current undifferentiated market and create a strong USP. However, the shareholders might disagree with such a risky strategic move This move might be perceived as too risky. There might be other ways of improving customer service especially if TQM is to be implemented, as customers are constantly listened to. Moreover, closing down the production facility is a significantly risky decision. It will be very difficult to rebuild one.

Answer 12

For: MISSION STATEMENT CSR COMPETITION; USP It fits in well with its mission statement and this may be important in maintaining customer loyalty. It fits into its belief in corporate social responsibility Competition is very intense – this could act as a strengthening of its USP for Benno and retain loyal customers and attract customers from rivals. Accept any other reasoned arguments. Against: EXPENSIVE therefore the funds will need to be raised, probably externally via a bank loan, which will lead to interest charges and an increase in operating costs. INCREASED PRICE = LESS DEMAND As the market is competitive and reports suggest that consumers are price sensitive, a price rise – passing on the cost of the new rings – is probably not going to be possible. The result is that Benno’s net profit margin will fall.

Answer 13

MARKET VS PRODUCT MARKET PENETRATION MARKET DEVELOPMENT PRDUCT DEVELOPMENT DIVERSIFICATION product development as coffee retailers look at their existing market and seek to gain their customers' loyalty with new and more exciting products, or market development as they take their existing product, coffee, and aim to extend to new niche markets (of their own creation) by educating their consumers to seek a new experience – or market penetration – It is a good example of a product extension strategy, adding value to a product for the consumer. diversification – From a certain perspective, TZ’s proposed takeover of GG is a form of diversification, related diversification (though candidates are not required to use the word related

Answer 14

Option 1 Advantages Speed YOU will have expanded quickly. INCREASED profitability EXCHANGE IDEAS ECONOMIES OF SCALE Option 1 Disadvantages COMMUNICATION PROBLEMS CULTURAL CLASH STAKEHOLDER CONFLICT EG 2 MANAGERS EG UNEMPLOYMENT

Answer 15

Option 2 Advantages INCREASED PROFIT OLD PRODUCT MAY BE IN DECLOINING STAGE OF PRODUCT LIFE CYCLE HOWVWER HIGHLY RISKY ON ANSOFF NO EXPERIENCE COMPETITION EG It will have to go head on with established brands EXPENSIVE MARKET RESEARCH This can be seen as diversification, reducing risks as the market of jars of coffee has stagnated in many richer countries. It already has experience of purchasing coffee beans on a large scale and can use the same suppliers for its new chain of cafes. It has great potential as demand is growing in eastern Europe. Demand is also growing in emerging markets so the prospects for sales may be good. Option 2 Disadvantages TZ has no experience of running cafes selling coffee. It will have to go head on with established brands (students are likely to name them e.g. Starbucks, Dunkin Donuts etc.) and may find it hard to compete with the brand loyalties already established. Will not have the economies of scale that existing chains have. Will take much longer – is only trialling this in 3 countries in EU. If successful in these countries will it work worldwide? – cannot be certain as consumers in these countries may have different tastes or attitudes to rest of the world.

Answer 16

Option 1 Pros This is very simple to implement and can be done very quickly. MAY ATTRACT NEW CONSUMERS Cons There will be additional costs ON advertiseMENTS to create customer awareness. Above and below the line advertising can be used. IT COULD START A PRICE WAR COZ COMPETITION may react by matching the price cuts

Answer 17

A mission statement is THE FUNDAMENTAL REASON A BUSINESS EXISTS a statement of the purpose of an organization, in this instance providing an education for girls. It should refer to the key market (parents of girls), the contribution it makes to that market and what makes the service unique, so that the client chooses the school. The school’s ethics may play a part in this.

Answer 18

A vision statement is where a business wants to be or the objectives it wants to archive. 1. Aid in **decision making**. In this instance it will refer to future plans for growth and facilities. 2. Aids organization in setting its short-term and long-term objectives. 3.** goal setting** 4. **motivating workers**

Answer 19

A mission statement is the fundamenal reason a business exists while a vision statement is where a business wants to be in future or the objectives it wants to archive.

Answer 20

Ethical objectives are the goals of a business based on a set of values or moral beliefs. They should cover all the actions of an organization and guide its decision-making process and strategies. Ethical objectives at GC: using environmentally friendly products to reduce pollution; paying fair wages

Answer 21

A mission statement is the fundamental reason a business exists. Advantages lets stakeholders know the purpose of the business Motivates workers by providing a sense of purpose and direction Guides in goal setting

Answer 22

CSR is when a business takes responsibility for their actions and takes into consideration the interests oof the community. 1. increase their customer base as USP. 2. Brand image and reputation 3. Attract investors . However: 1. Increased costs 2. reduce productivity eg workers leave

Answer 23

Job production refers to the production of unique items that are tailor-made to meet the needs of individual customers. Ads motivating for workers The product is adapted to meet individual customer requirements. The product can be sold for a higher price due to its unique specifications. Dis High COP due to highly skilled workers needed and specific materials needed for specific consumer needs. Time consuming Batch production involves producing items in groups of identical products. Ads less defects due to uniformality. cheaper Economies of scale Dis Low worker motivation High storage costs

Answer 24

Advantages of this approach include: * The wholesaler stores the product, thereby **reducing storage costs. ** * The wholesaler **purchases in bulk** and then breaks the bulk purchases into smaller batches for the retailers. * this approach pushes much of the complicated processes of distribution to wholesalers. However, working with wholesalers has disadvantages: * Working with wholesalers adds another intermediary and mark-up, which can **lead to higher prices to consumers** (who may respond by purchasing other products) or to thinner margins for SV.

Answer 25

Advantages 1. 24/7 2. wider reach 3. less costs Disadvantages 2. 1. Expensive 2. Some dont have access to internent 3. delivery time

Answer 26

Importance of being ethical as a business * maintaining the brand image (perhaps the most important). * Aiming to improve long term success and profitability of the businessfrom good image

Answer 27

The advantages of long-term debt are 1. Retains control 2. Gets the money now and pays back over a period of time 3. one can discuss the repayment plan l The disadvantages of long-term debt are 1. Interest rate 2. Failure to pay back may result in losong assets or even business itself Advanatges of shares; No interest payments. It can generate large sums of money for the business to develop The main disadvantage is that 1. Loss of control 2. dividents must be paid

Answer 28

Advantages of expansion include: Market leader status Potential economies of scale. Potentially increased revenue and profits. Disadvantages of expansion include: Potential diseconomies of scale. Communication problems

Answer 29

improve the product, alter the price, have better promotions. A disadvantage to this strategy is that it may be too expensive to work and cause price wars too. price discounts easy to implement attract new consumers price war expensive advetisement costs to raise awareness

Answer 30

A cooperative is an organization that is for the people and by people for their mutual benefit.

Answer 31

Define the term public sector. sector run by the government to provide merit goods like education.

Answer 32

1. Raise funds is easier 2. Can share ideas 3. Not lonely 4. limited liability

Answer 33

State two features of a partnership more than one owner shared profits/risk unlimited liability.

Answer 34

Advantages include: Partners can each have different skills, which benefits the business. More capital is available for the business than when set up as a sole trader. Disadvantages include: There is a risk of disagreements amongst partners. The amount of capital that can be raised is limited unless additional partners are taken on and in this case the partnership lacks the finance needed for expansion. The liability of the partners for the debts of the business is unlimited.

Answer 35

Co-operatives are businesses owned and run by and for their members for their mutual benefit . The members may be customers, employees or residents. All members have an equal say in what the business does and a share in the profits. Profits are shared amongst members Members share decision making Each member has the same voting rights on decisions Members are owners of the business Operate in the private sector

Answer 36

Private Limited Company is a legal entity entity, in which , the firm is limited to having fewshareholders, and shares are prohibited from being publicly traded with limited liability. 1. limited liability 2. source of fincance through share capital 3. Limited number of shareholders – may be important to retain the high ethical values. Limited liability – the business is fairly high risk so Su may need protection of her personal finances. * Limited number of shareholders – may be important to retain the high ethical values. * Difficult to take over – Su will want to keep this project hers. * Separate legal entity. * Able to raise additional finance without losing control. (VIP) * Continuity assured

Answer 37

Limited liability Share capital source of income No interest paid Dividends must be paid Loss of control Cultural clashes and stakeholder conflict It is uncertain at this stage whether this change in culture will bring forward any improvements. However it provides financing through shares; If the company goes public, they will be able to sell shares in the stock market to raise the required capital to develop and produce it. They will be able to finance product innovation, research and development. With share capital, businesses diversify their production and offer a wider range of products. Through the expansion of their product portfolio, it is likely that businesses' customer base and sales will increase. Share capital will also open up advertising possibilities. SSC will be able to finance costly above the line advertising instead of relying on social media and word of mouth. However, converting to a public limited company could be a risky move. If more than 50 % of shares are bought by another company the owner faces concerns of ownership; they will lose their control over SSC. New shareholders may have a different perspective in several aspects & Clashing perspectives may arise and different business cultures being introduced which may affect motivation of employees plus owner will have to fire some

Answer 38

1. Limited liability 2. source of finance through share capital No interest paid However 1. Shared ownership (stakeholder conflict between owners) 2. slow decision making Cultural clashes Dividents must be paid 2. loss of control

Answer 39

single owner unlimted liability Easy to set up – no legal formalities Owner has complete control – not answerable to anyone else Owner keeps all profits Able to choose times and patterns of working Able to establish close personal relationships with staff (if any are employed) and customers

Answer 40

Easy to set up – no legal formalities Owner has complete control – not answerable to anyone else Owner keeps all profits Able to choose times and patterns of working Able to establish close personal relationships with staff (if any are employed) and customers

Answer 41

Shares aren't sold Owners of the business will enjoy limited liability, which indicates that if a business experiences a financial collapse then the owners will only be liable for the capital contributed.

Answer 42

Shares aren't sold Owners of the business will enjoy limited liability, which indicates that if a business experiences a financial collapse then the owners will only be liable for the capital contributed.

Answer 43

is a legal entity owned by shareholders and has limited liabiliyt. A limited company (incorporated), often a large business, with the legal right to sell shares to the general public (publicly traded). Its share price is quoted on the national stock exchange. It has limited liability (not necessary in answer but helpful)

Answer 44

Mission/vision statement Business objectives An executive summary Financial forecasts Marketing strategies Organization strategies

Answer 45

it turns raw materials into finished products. This sector includes both construction and manufacturing. It uses resources from the primary sector to manufacture finished goods or process raw materials to be used for other secondary sector business. The secondary sector supports both the primary and tertiary sector.

Answer 46

determining a location Market research identifying market opportunities sourcing capital: the owners plus possible outside sources building a customer base

Answer 47

Competition Start up capital Cash flow problems Human resources issues, particularly finding the right staff. Insufficient marketing. Market research Poor planning. Insufficient start-up capital.

Answer 48

Intrapreneurship allows for risk taking, creativity and innovation Risk taker Creative

Answer 49

Secondary sector: manufacturing – converting raw materials. Usually capital intensive Tertiary sector activities – providing services. Usually labour intensive, often B2C.

Answer 50

The tertiary sector is the service sector of an economy, including retail outlets. Hospitality and Tourism: Businesses in this sector include hotels, restaurants, travel agencies, tour operators, theme parks, and entertainment venues.

Answer 51

For the 10 marker Two arguments for, two arguments against plus a conclusion that is more than nominal - actually flows out of the analysis. **Rich use of business language, business theory and the stimulus**

Answer 52

Methods of reorganising production outsourcing (subcontracting) insourcing offshoring reshorin

Answer 53

Offshoring is the relocation of a business function to another country.

Answer 54

Taking control of outsiurced business functions Insourcing involves ending contracts with external suppliers to undertake previously outsourced business functions. Insourcing is the opposite of outsourcing.

Answer 55

Reshoring involves bringing back production to a country from a location abroad.

1. Introduction to Business Flashcards

(80 cards)