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Flashcards in Chapter 2 (Business structure) Deck (55):

What is primary sector business activity?

Primary sector is the extraction of natural resources used and processed by other firms. this includes fishing, farming and oil extraction.


What is Secondary sector business activity?

secondary sector is firms that manufacturing and process products from natural resources, brewing, baking, clothes making and construction.


What is tertiary sector of business activity?

tertiary sector of business activity is where firms provide services to consumers and other businesses, such as relating, transport, insurance, banking, hotels


what are the benefits and problems with changes in business activity?

-GDP will increase
- Increase in output of goods can result in lower imports and higher exports of such products
-Expanding manufacturing businesses will result in more jobs being created.
-Imports of raw material and components will increases the country's import costs
-Much of the growth of manufacturing industries is due to the expansion of multinational companies
-Chance of work can encourage a huge movement of people from the country to the towns, which leads to housing and social problems


what is private sector?

Private sector are businesses owned and controlled by private individuals or groups of individuals.


What is Public sector?

Public sectors are organisations accountable to and controlled by central or local government.


What is a Mixed economy?

A mixed economy is where resources are owned by and controlled by bot private and public sectors.


Free-market economy?

economic resources owned largely by the private sector with very little state intervention.


Command economy?

Command economy is where resources are owned, planned and controlled by the state.


Sole trader?

Sole traders is a business in which one person provides the permanent finance and, in return, has full control of the business and is able to keep all of the profit.


Advantages of a sole trader.

-easy to set up
-owner has complete control
-owner keeps all the profits
able to chose times and patterns of working



A business formed by two or more people carry on a business together, with shared capital investments and usually, shared responsibilities.


Advantages of Partnerships

-Partners my specialize in different areas of the business management.
-Shared decision making
-additional capital injected by each partner.
-Business losses shared between the partners


Limited liability?

the only liability/ or loss a shareholder has if the company fails is the amount invested in the company, not the total wealth of the shareholder.


Private limited company

A small to medium-sized business that is owned by share holders who are often members of the same family. this company cannot sell share to the general public.



A person or institution owning shares in a limited company.



A certificate confirming part ownership of a company and entitling the shareholder owner to dividends and certain shareholders rights.


Advantages of a private limited company

-Shareholders have limited liability
-Separate legal personality
-Continuity in the event of the death of a share holder
-able to raise capital from sales of shares to family, friends and employees.


Public limited company?

A limited company, often larger business, with the legal right to sell shares to the general public. (share are sold on the national stock exchange.


Advantages of a public limited company.

- limited liabilities.
-Separate legal identity
-easy of buying and selling of shares for share holders


Memorandum of association

this states the name of the company, the address of the head office through which it can be contacted, the maximum share capital for which the company seeks authorisation and the declared aims of the business


Articles of Association

this document cover the internal working and control of the business- for example, the names of director and the procedures to be followed at meeting will be detailed.



is a business that uses the name, logo and trading systems of an existing successful business.


joint venture

is two or more businesses agreeing to work closely together on a particular project and create a separate business division to do so.


Holding company

is a business organisation that owns and controls a number of separate businesses, but does not unite them into one unified company


Public corporation

A business enterprise owned and controlled by the state-also known as nationalised industry.


advantages of a franchised business

-Less likely to fail
-Advice and training offered by the franchiser
-National advertising paid for by franchiser
-Franchisor agrees not to open another branch in the local area
-supplier deals often decrease cost as the franchiser has done business with them for a long time.


Advantages of joint ventures

-cost and risks of a new business are shared
-different companies might have different strengths and experiences and they therefore fit well together.
-They might have major markets in different countries and they could exploit these with new product more effectively than if they both decided to 'go it alone'


Advantages of a Public corporation

-Managed with social objectives rather than solely with project objectives
-loss-making services might still be kept operating if the social benefit is great enough.
-finance raised mainly from the government



Selling state-owned and controlled business organisations to investors n the private sector


Advantages of privatisation

- the profit motive of private-sectors businesses will lead to much greater efficiency than when a business is supported and subsidised by the state.
-decision making in state bodies can be slow and bureaucratic
-Private businesses will have access to the private capital markets and this will lead to increased investment in these industries


Disadvantages of a sole trader

-Unlimited liability
-difficult to raise additional capital
-long hours often necessary to make business pay
-lack of continuity


Disadvantages of partnerships

-Unlimited liability for all partners
-profits are shared
all partners bound by the decisions of any one of them
-Not possible to raise capital from selling shares.
-No continuity and partnerships will have to be reformed in the event of a death of one of the partners.


Private limited companies disadvantages

-Legal formalities involved in establishing the business
-capital cannot be raised by sale of shares to the general public
-quite difficult for shareholders to sell shares
-End-of-year accounts must be sent sent to companies house.


Public limited company disadvantages

-legal formalities in formation
-costs of business consultants and financial advisers when creating such a company
-Share prices subject to fluctuation
- risk of being overtaken.


disadvantages of a Franchised business

- initial franchise licence fee can be expensive
-No choice of supplies or suppliers to be used
-shares of profits or sales revenue has to be paid to franchiser each year
-local promotions may have to be paid for by franchisee


Disadvantages of a Joint venture

-styles of management and culture might be so different that the two teams do not blend well together.
- Errors and mistakes might lead to one blaming the other for mistakes
-The business failure of one of the partners would put the whole project at risk


Disadvantages of a public corporation.

-tendency towards inefficiency due to lack of strict profit targets
-subsidies from government can also encourage inefficiency
-government may interfere in business decisions for political reasons, for example opening a new branch in a certain area to gain popularity


disadvantages of privatisation

-Many strategic industries could be operated as 'private monopolies' if privatised and they could exploit consumers with high prices.
-with competing privately run businesses it will be much more difficult to achieve a coherent and coordinated policy for the benefit of the whole country. this means by responsible minister and direct accountability to parliament.
-breaking up nationalised industries, perhaps into several competing units, will reduce the opportunities for cost saving through economies of scale.


public-private partnerships

these are government services or business ventures that are funded and managed through partnership of government and one or more private-sector companies


What are the two different public -private partnerships?

Government funded- privately managed schemes.
Private-sector funded - government or state managed.


What are the risks of international trading?

-there may be loss of output and jobs from those domestic firms that cannot compete effectively with imported goods
-there may be a decline, due to imports, in domestic industries that produce very important 'strategic' goods, for example coal, foodstuffs; this could put the country at risk if there were conflicts between countries or another factor leading to a loss of imports.
-Newly established businesses may find it impossible to survive against competition from existing importers. this will prevent 'infant industries' from growing domestically


Free trade

in a no restrictions or trade barriers exist that might prevent or limit trade between countries.



taxes imposed on imported goods to make them more expensive than they would otherwise be



limits on the physical quantity or value of certain goods that may be imported


Voluntary exports limits

an exporting country agrees to limit the quantity of certain goods sold to one country



using barriers to free trade to protect a country's own domestic industries.


What are the benefits of free trade?

- imports of raw material can allow a developing economy to increase its rates of industrialisation
-importing products creates additional competition for domestic industries and this should encourage them to keep costs and prices down ad make their goods as well designed and as high quality as possible
-countries can begin to specialise in those products they are best at making if they import those that they are less efficient at compared to other countries. this is called comparative advantage.


Who has helped with the drive of free trade?

- The World Trade Organization (WTO)
-Free-trade blocs



Is the increase freedom of movement of goods, capital and people around the world.


Multinational business

is a business organisation that has its headquarters in one country, but with operating branches, factories and assembly plants in other countries.


Why become a multinational?

1. Closer to main markets:
-lower transport costs for finished goods
-better market information regarding consumer tastes as a result of closeness to them
2.lower cost of production:
-lowerlabour rates due to much lower demand for local labour compared to developing economies
-Cheaper rent and site costs, again resulting from lower demand for commercial property
3.Avoid import restrictions- by producing in the local country there will be no import duties to pay and n import restrictions
4.access to local natural resources.


Potential problems for multinationals

- communications with headquarters could be poor.
-Language, legal and culture differences with local workers and government officials could lead to misunderstanding
-coordination with other plants in the multinational group will need to be to be carefully monitored to ensure that products that might compete with each other on worlds are not produced or that conflicting policies are not adopted .
It is likely that the skill level of the local employees will be low and this could require substantial investment in training programmes.


Benefits for a multinational operation for the host country?

1. the investment will bring in foreign currency and, if output from the plant is exported, further foreign exchange can be earned
2. employment opportunities will be created and training programs will improve the quality and efficiency of local people.
3.local firms are likely to benefit from supplying services and components to the new factory and this will generate additional jobs and income
4. the total out put of the economy will increase and this will rise gross domestic product.


Donside for a multinational operation for the host country?

1. exploitation of the local workforce might take place (absence of strict labour and health and safety rules.)
2.Pollution fro plants might be at a high levels than allowed in other countries (slack rules)
3.Local competing firms may be squeezed out of business due to inferior equipment and much smaller resources than the larger multinationals
4.Profitis may be sent back to the country where the head office of the company is based , rather than kept for reinvestment in the host nation